Thank you Freki for a great post. Bankruptcy is only bad news if you didn't already know that the firm had failed financially.

Those who make the argument that an airline, automaker, brokerage or insurance company is too big to fail are the same ones IMO who do not understand or favor market capitalism in the first place. President Obama to my knowledge has not read a book about free market capitalism that does not oppose it. Same I'm sure can be said about Pelosi, Reid, Durban, Barney Frank, Ted Kennedy and the rest of the current power structure.

Failure is the lifeblood of capitalism and new growth. It puts a market check, price check and reality check on ideas, strategies and organizations. Out of failure comes re-priced assets and human talent free to start new and better enterprises. The sooner failed enterprises fail, the sooner that better, more efficient and more innovative ones can emerge.

Too big to fail is a perfect description for the old Soviet economy. There was no dynamic movement of resources and capital to its most efficient use. By refusing to recognize failure of the large, bureaucratic, inefficient, non-competitive enterprises, they blocked the emergence of newer and better ones. Eventually the whole house of cards came crashing down. Every day under this regime we look more and more like them.

Paul Krugman of Princeton / NY Times is the icon of current liberal economics. His criticism that the stimulus is too small gives the print and spend crowd much needed cover. Don't be fooled by his Nobel peace prize - terrorist Yasser Arafat and appeaser Jimmy Carter each have one too!

Krugman is arguing that the plan to borrow / print 10 trillion or so in the current forecast is not inflationary, because ... well, we need the money. Economist Alan Reynolds takes him to task in Forbes this week on his history and logic.----

In his June 15 column, "Stay the Course," Paul Krugman suggests it is simply foolish to worry that the government could possibly borrow too much, or that the Federal Reserve might buy ("monetize") too much of that debt.

In a closely related blog, claiming Art Laffer is "way off base" about future inflation, Krugman insisted "for the 1.6 trillionth time, we are in a liquidity trap." That makes 1.6 trillion times he's been wrong about that.

A 100% increase in the U.S. monetary over 10 years (1929-1939) amounts to just 7% a year. That is scarcely comparable to the 113% increase over the past 12 months. Besides, the 1930s do not support his "liquidity trap" argument once we examine what happened when.

To say U.S. prices fell 19% from 1929 to 1939, for example, means they fell much more than 19% from 1929 to 1933 before rising from 1934 to 1937 when the monetary base was growing.

With the exception of a brief Fed easing in the spring of 1932, the U.S. monetary base was generally falling or flat from January 1929 to early 1934. From March 1934 to July 1937, by contrast, the rate of growth of the monetary base jumped above 16% on a year-to-year basis. If we had been in a "liquidity trap" that would have had no effect. Yet real gross domestic product grew by 9.5% a year from 1934 to 1937, and consumer prices by 2.6% a year. Since the facts contradict his liquidity trap thesis, Krugman pretends the rebound after 1933 was "helped along by New Deal policies."

On the contrary, Christina Romer's research clearly demonstrates that strong rebound of 1934-37 was "helped along" by a 42% increase in the money supply. She found, "monetary developments were very important and fiscal policy was of little consequence ... Even in 1942, the year that the economy returned to its trend path, the effects of fiscal policy were small."

In his blog, Krugman argues that "a Friedman-style focus on a broad monetary aggregate gives the false impression that Fed policy wasn't very expansionary. But it was; the problem was that since banks weren't lending out their reserves and people were keeping cash in mattresses, the Fed couldn't expand M2."

In any bank crises, the public wants to hold more currency rather than bank deposits, and banks also want excess reserves as insurance against bank runs. Japan's central never adequately accommodated that demand for bank reserves and currency before 2001 (if then) nor did the Fed in 1929-33. But that does not mean (as the liquidity trap implies) that monetary policy was impotent and merely "pushing on a string."

Once monetary policy stopped pulling and started pushing after 1933, both real output and prices went up. Krugman then turns to Japan from 1997 to 2003 as his second bad analogy with current Fed policy. Although Japan's "lost decade" began in 1992, Krugman starts with 1997. Why? Because Japan's monetary base grew very slowly before then. The Bank of Japan did not try even a mild dose of "quantitative easing" until March 19, 2001, and it may have helped. Economic growth was 2.7% in both 2004 and 1996, so Krugman talks only about 1997 to 2003.

Krugman's other reason for starting with 1997 is to argue that Japan's economy slipped into recession that year because the budget deficit shrunk too much. He says, "Japan experienced a partial recovery, with the economy growing almost 3% in 1996. Policy makers responded by shifting their focus to the budget deficit, raising taxes and cutting spending. Japan proceeded to slide back into recession." This Keynesian focus on deficits is untenable: Japan's budget deficit reached 10.7% of GDP by 1998--up from 4% in 1996.

What really happened is a classic example of "intertemporal shifting" to avoid a tax hike. In 1996, Japanese consumers knew the consumption tax (VAT) was scheduled to rise from 3% to 5% in April 1997. So they rushed to stock up on big-ticket items in 2006 before the tax increase. That tax-induced shopping spree artificially boosted GDP in 1996 at the expense of 1997-1999.

Even if Krugman's two historical examples of an alleged liquidity trap were not so obviously flawed, he also never managed to tie them in any way to recent events. His only (flawed) evidence of a liquidity trap in the 1930s was that "the Fed couldn't expand M2."

Yet Krugman's claim about the Fed's inability to increase M2 during liquidity traps proves for the 1.6 trillionth time that we are NOT in a liquidity trap! M2 increased by 14.8% from August to February, thus lifting M2's year-to-year increase to 9% in May from 5.3% last August.

If Paul Krugman hopes to base his sanguine inflationary forecasts and go-go policy advice on historical analogies, he needs to (1) get the history right, and (2) show how that history is comparable to recent experience. On both counts, he failed. Again.

The terrible Washington Metrorail crash that killed nine people has led to calls for more money for transit. Yet the real problem with Washington Metro, as with almost every other transit agency in this country, is that it has too much money — it just spends the money in the wrong places.

“More money” seems to be the solution to every transit issue. Is ridership down? Then transit agencies need more money to attract more riders. Is ridership up? Then agencies need more money because fares only cover a quarter of the costs.

Yet the truth is that urban transit is the most expensive form of transportation in the United States. Where the average auto user spends about 24 cents per passenger mile, transit costs more than 80 cents per passenger mile, three-fourths of which is subsidized by general taxpayers. Subsidies to auto driving average less than a penny per passenger mile. Where autos carry 85 percent of American passenger travel, transit carries about 1 percent.

When Congress began diverting highway user fees to transit in 1982, it gave transit agencies incentives to invest in high-cost transportation systems such as subways and light rail when lower-cost systems such as buses would often work just as well. Once they build the high-cost systems, the transit agencies never plan for the costs of reconstructing them, which is needed about every 30 years. The Washington Metro system, which was built as a “demonstration project” in the 1970s, is just a little ahead of the curve.

Now over 30 years old, Washington’s subways are beginning to break down. Before the recent accident, some of the symptoms were broken rails, smoke in the tunnels, and elevator and escalator outages.

Now we learn that the National Transportation Safety Board told Metro in 2006 to replace the cars that crashed on Monday because they were in danger of “telescoping,” which is what killed so many people in Monday’s accident. Also, the brakes were overdue for maintenance. Metro responded that it planned to eventually replace the obsolete cars, but didn’t have the money for it.

But it does have money to build an expensive new rail line to Tysons Corner and, eventually, Dulles Airport. Planners had originally recommended running bus-rapid transit along this route, but that wasn’t expensive enough so Metro decided to go with rails instead — at ten times the cost of the bus line.

The simple problem is that we have forgotten about the need to weigh revenues and costs. Instead, transit has become a favorite form of pork barrel and, for the slightly more idealistic, a method of social engineering, meaning a part of the Obama administration’s campaign to “coerce people out of their cars.”

On June 15th California implemented another foreclosure moratorium. The California Foreclosure Prevention Act (CFPA) was signed into law by Governor Schwarzenegger which adds another 90 days to the foreclosure process. If you recall, a similar law was put into place in 2008 and turned out to be an utter failure. So what do we do? We virtually create another replica plan for a second go around. The plan will fail on so many levels and we will discuss the reasons why in this article. California has taken a major beating since it was part of the housing bubble mania and is now at the forefront of the bubble bursting.

The problem with dealing with the current foreclosure issue in California is how the issue is being framed. Take this perspective for example:

“(SF Chronicle) The goal is to compel banks to do systematic loan modifications across California to reduce our foreclosure rate, which is the highest in the nation,” said Assemblyman Ted Lieu, D-Torrance, who wrote the bill. “Until we slow that down, the California economy cannot recover.”

I appreciate the perspective but dropping the foreclosure rate in the short-term to pad statistics is flawed for many reasons. The way the plan is devised, it will create an army of lifelong renters with onerous mortgage terms. This is helping no one except servicers to get a nice kick back for modifying the loan and padding foreclosure data in the short term. Take a look at how the last moratorium turned out in California:

The Debt TsunamiThe CBO's latest warning on the long-term deficit is scarier than ever.Sunday, June 28, 2009

THE CONGRESSIONAL Budget Office has a tough job: to provide America's lawmakers with a reality check on their tax and spending plans. Not surprisingly, the CBO's projections are not always received cheerfully. Both President Obama and leading congressional Democrats were less than thrilled when the CBO estimated that the costs of universal health coverage would be much higher than advertised. To be sure, projecting the cost of legislation involves making assumptions and constructing models that may or may not prove accurate 10 years down the road. Nonetheless, the CBO, with its tradition of scholarly independence, is the best available arbiter, and Congress must heed its numbers -- like them or not.

Now comes the CBO with yet more news of the sort that neither Capitol Hill nor the White House is likely to welcome: its freshly released report on the federal government's long-term financial situation. To put it bluntly, the fiscal policy of the United States is unsustainable. Debt is growing faster than gross domestic product. Under the CBO's most realistic scenario, the publicly held debt of the U.S. government will reach 82 percent of GDP by 2019 -- roughly double what it was in 2008. By 2026, spiraling interest payments would push the debt above its all-time peak (set just after World War II) of 113 percent of GDP. It would reach 200 percent of GDP in 2038.

This huge mass of debt, which would stifle economic growth and reduce the American standard of living, can be avoided only through spending cuts, tax increases or some combination of the two. And the longer government waits to get its financial house in order, the more it will cost to do so, the CBO says.

The CBO's new long-term forecast is considerably more pessimistic than the one it issued 18 months ago, mostly because of the recession, which has driven the budget deficit above 12 percent of GDP. But the report makes clear that the recent economic downturn did not cause the government's predicament and that the situation will not necessarily improve once the economy does. The principal cause of long-term fiscal distress is the aging of the U.S. population, coupled with rising health-care costs -- which, together, will drive spending on Medicare, Medicaid and Social Security to new heights. Unchecked, federal spending on Medicare and Medicaid combined will grow from almost 5 percent of GDP today to almost 10 percent by 2035 -- and to more than 17 percent of GDP by 2080.

Like his predecessors, Mr. Obama is aware of this issue. Like them, he has promised a plan to deal with it. And like them, he has not come up with anything credible yet. It's time for that to change.

President Barack Obama exits Air Force One. (AP Photo) (CNSNews.com) - Every “green job” created with government money in Spain over the last eight years came at the cost of 2.2 regular jobs, and only one in 10 of the newly created green jobs became a permanent job, says a new study released this month. The study draws parallels with the green jobs programs of the Obama administration.

President Obama, in fact, has used Spain’s green initiative as a blueprint for how the United States should use federal funds to stimulate the economy. Obama's economic stimulus package,which Congress passed in February, allocates billions of dollars to the green jobs industry.

But the author of the study, Dr. Gabriel Calzada, an economics professor at Juan Carlos University in Madrid, said the United States should expect results similar to those in Spain:

"Spain’s experience (cited by President Obama as a model) reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created,” wrote Calzada in his report: Study of the Effects on Employment of Public Aid to Renewable Energy Sources.

Obama repeatedly has said that the United States should look to Spain as an example of a country that has successfully applied federal money to green initiatives in order to stimulate its economy.

“Think of what’s happening in countries like Spain, Germany and Japan, where they’re making real investments in renewable energy,” said Obama while lobbying Congress, in January to pass the American Recovery and Reinvestment Act. “They’re surging ahead of us, poised to take the lead in these new industries.”

“Their governments have harnessed their people’s hard work and ingenuity with bold investments — investments that are paying off in good, high-wage jobs — jobs they won’t lose to other countries,” said Obama. “There is no reason we can’t do the same thing right here in America. … In the process, we’ll put nearly half a million people to work building wind turbines and solar panels; constructing fuel-efficient cars and buildings; and developing the new energy technologies that will lead to new jobs, more savings, and a cleaner, safer planet in the bargain.”

Included in the stimulus package, for example, was $4.5 billion to convert government buildings into high-performance green buildings.

According to the Calzada’s study, Spain is a strong example of the government spending money on green ideas to stimulate its economy.

“No other country has given such broad support to the construction and production of electricity through renewable sources,” says the report. “The arguments for Spain’s and Europe’s ‘green jobs’ schemes are the same arguments now made in the U.S., principally that massive public support would produce large numbers of green jobs.”

But in the study’s introduction Calzada argues that the renewable jobs program hindered, rather than helped, Spain’s attempts to emerge from its recession.

“The study’s results show how such ‘green jobs’ policy clearly hinders Spain’s way out of the current economic crisis, even while U.S. politicians insist that rushing into such a scheme will ease their own emergence from the turmoil,” says Calzada. “This study marks the very first time a critical analysis of the actual performance and impact has been made."

Pat Michaels, professor of environmental sciences at the University of Virginia and senior fellow in environmental studies at the Cato Institute, a free market group, told CNSNews.com that the study’s conclusions do not surprise him. He added that the United States should expect similar results with the stimulus money it spends on green initiatives.

“There is no reason to think things will be any different here,” Michaels said. “In the short run you have to ask who is doing the hiring, and in the long run how efficient is it to have people serving technology such as windmills. We are creating inefficiencies.”

Michaels also said he was not surprised by the study’s finding that only one out of 10 jobs were permanent.

“That doesn’t surprise me,” said Michaels. “When we see how imperfect wind energy is and how expensive it is to maintain -- I think many of those jobs will become impermanent here in the U.S. as well.”

Inquiries for comment to the Natural Resources Defense Council and the Center for American Progress were not answered before this story went to press.

Hello green jobs good by real jobs.

Boyo

PS In order to keep the GM plant in lake orion Mi. open congressman Gary Peters (Dem) sold his vote and supported cap and trade .In doing so he saved 1200 jobs in Oakland county Mi. but long term it is estimated that he burned about 4,000 jobs in Oakland county . If or should I say WHEN cap and trade is enacted.Nice vision for the future there congressman peters.

It's early June in Washington, D.C. Barack Ohama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place arc Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a ground breaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimated that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation.

Paulson's report argued that "voluntary action alone cannot solve the climate-change problem." Few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner AI Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Hanis. Their business? Investing in carbon offsets, There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech...the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want, It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying tor it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone though lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things Bat are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

As a result, the IMF is now set to "print" $300 billion worth of SDRs -- 10 times more than currently exist -- for distribution to nations around the globe. They will effectively be held as reserve deposits by each nation's central bank.

Some, like Bergsten, have argued the SDRs' role should be taken a step further, allowing them to serve as a de facto global reserve currency. Bergsten has advocated, for instance, the idea of nations such as China "trading in" their dollars for SDRs, allowing for an orderly transition away from the greenback without causing a sharp fluctuation in the dollar's market value.

"Like it or not, the dollar is going to lose some of its global status," Bergsten said. "So maybe it's time we just accepted that and figured out the best and most orderly way to make that happen."

June 29, 2009Entitlements Darken Long-Term Outlook for Federal Budgetby Nicola MooreWebMemo #2510For years, the Congressional Budget Office (CBO), Government Accountability Office, Social Security and Medicare Trustees, and think tanks from across the political spectrum have been warning Congress that the budget is on an unsustainable course, and for years Congress has ignored them. CBO recently issued a new warning in their updated "Long-Term Budget Outlook" that is déjà vu all over again.

Under either of two scenarios CBO examined, spending will explode, resulting in unprecedented levels of debt and deficits that would cause substantial harm to the economy. But this year, Congress does not need to read any further than the summary of the report to figure out what to do. As CBO states:

Almost all of the projected growth in federal spending other than interest payments on the debt comes from growth in spending on the three largest entitlement programs--Medicare, Medicaid, and Social Security.[1]

Solving America's deficit problem is an impossible task unless entitlement programs are reformed. The current recession, which has put a finer point on the problem of trillion-dollar deficits, should elevate the need for reform to a level not even Congress can continue to ignore.

Outlook Does Not Look Good

CBO's analysis consists of two sets of projections whose chief difference is that one, the "Extended-Baseline Scenario," assumes no changes to current tax policy while the other, the "Alternative Fiscal Scenario," would extend the 2001 and 2003 tax cuts and patch the AMT. The former yields higher revenues, resulting in lower deficits and a rosier outlook than the latter. For simplicity and to illustrate that even the best-case scenario is a miserable option, this paper will quote numbers from the Extended-Baseline Scenario only.

The most frightening findings in this report are the deficit and debt projections. In this year and next year, the yearly budget shortfall, or deficit, will be the largest post-war deficits on record--exceeding 11 percent of the economy or gross domestic product (GDP)--and by 2080 it will reach 17.8 percent of GDP.

The national debt, which is the sum of all past deficits, will escalate even faster. Since 1962, debt has averaged 36 percent of GDP, but it will reach 60 percent, nearly double the average, by next year and will exceed 100 percent of the economy by 2042. Put another way, in about 30 years, for every $1 each American citizen and business earns or produces, the government will be an equivalent $1 in debt. By 2083, debt figures will surpass an astounding 306 percent of GDP.

The report also finds high overall growth in the government as a share of the economy and of taxpayers' wallets that provides an additional area of concern. While total government spending has hovered around 20 percent of the economy since the 1960s, it has jumped by a quarter to 25 percent in 2009 alone and will exceed 32 percent by 2083. Taxes, which have averaged at 18.3 percent of GDP, will reach unprecedented levels of 26 percent by 2083. Never in American history have spending and tax levels been that high.

But Why Should This Year Be Any Different?

Much of the shock of these statistics is old news. The specific numbers from report to report by CBO and even other agencies have changed slightly year to year as data is updated and assumptions are modified, but the message about the budget's unsustainable course has stayed the same. However, two factors should cause this year's "Long-Term Budget Outlook" to resonate more strongly and catalyze congressional action.

First, the current recession has proven how important it is to get and keep America's economy on track. America is in a period of high unemployment, negative economic growth, and trillion-dollar deficits. More trillion-dollar deficits will not get or keep America's economy on a sustainable path, nor will they be tolerated by the public, but that is precisely where the U.S. economy is headed.

While debt levels at 300 percent of GDP would produce unimaginable economic pain, the situation would be even worse than CBO predicts. As debt levels increase, interest rates, too, must increase in order to encourage more citizens or foreign governments to buy up debt. However, CBO does not attempt to model interest rate increases. Had CBO accounted for this, long-term deficit and debt numbers would be far higher because rising interest rates would drive net interest costs up further, driving deficits and debt up even higher, driving interest rates up further, and so on in a vicious cycle. As CBO states on page eight of the report: "If debt actually increased as projected under either scenario, interest rates would be higher than otherwise and economic growth would be slower."[2]

Second, the Obama Administration and Democratic congressional leadership are poised to make the budget situation far worse with proposals for new expensive federal programs, such as national health care. While many policy goals may seem important in isolation, they must still be paid for in the broader context of the entire budget. Americans cannot afford to let Congress quietly sweep this report under the rug; Congress must confront America's budget situation openly and honestly before passing policies that would make this bad situation worse.

Congress Has One Option: Entitlement Reform

As CBO explains, the cause of the bleak outlook is clear: "Debt soars (under either baseline) because of unrelenting growth in federal spending on health care programs and a rise in Social Security spending as a share of GDP, combined with a much smaller increase in tax revenues."[3] Indeed, over the projection period these retirement entitlements, which are already the largest pieces of the budget, will more than double in size.

Unlike other spending, which will actually decrease substantially over the projection period if stimulus spending is phased out, entitlement spending is part of mandatory spending and grows on autopilot. The automatic growth leads to exploding costs due to rising health care costs and the fact that the 77 million retiring baby boomers outnumber the workers who will support them by a 2-to-1 ratio. Cutting an earmark here or raising a soda tax there will be absolutely insufficient to overcome these pressures, which is why CBO correctly admits that entitlement reform is the only option.

Too Bad to Ignore

Now that Americans are all too familiar with the problems associated with economic slowdowns and trillion-dollar deficits, Congress ought to take the warnings issued in the CBO's "Long-Term Budget Outlook" seriously. Adding new entitlements, such as national health care, or ignoring the need to reform existing ones while claiming to care about fiscal responsibility will be disingenuous at best and economically debilitating at worst.

Nicola Moore is Assistant Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

Mr. Popular? Ron Paul Wins Supporters to Fed Sunshine BillRep. Ron Paul so far has won 245 co-sponsors to a bill that would require a full-fledged audit of the Federal Reserve by the end of 2010. By Judson Berger

FOXNews.com

Tuesday, June 30, 2009

Rep. Ron Paul, shown here speaking to the American Conservative Union last February, is winning supporters to a new bill. (Reuters Photo)

All of a sudden, Congress is paying close attention to Ron Paul.

The feisty congressman from Texas, whose insurgent "Ron Paul Revolution" presidential campaign rankled Republican leaders last year, now has the GOP House leadership on his side -- backing a measure that generated paltry support when he first introduced it 26 years ago.

Paul, as of Tuesday, has won 245 co-sponsors to a bill that would require a full-fledged audit of the Federal Reserve by the end of 2010.

Paul attracted just 18 co-sponsors when he authored a similar bill, which died, in 1983. While the impact Fed policies have on inflation is once again a concern, fears about loose monetary policy and excessive federal spending appear even more widespread in 2009.

"In the past, I never got much support, but I think it's the financial crisis obviously that's drawing so much attention to it, and people want to know more about the Federal Reserve," Paul told FOXNews.com.

With the Federal Reserve holding interest rates at rock-bottom levels, pumping trillions into the economy and now poised to have new powers to oversee the financial system under President Obama's proposed regulatory overhaul, Paul said lawmakers want transparency.

"If they give them a lot more power and there's no more transparency, that'll be a disaster," he said.

The bill would call for the comptroller general in the Government Accountability Office to audit the Fed and report those findings to Congress. The GAO's ability to conduct such audits now is severely restricted.

A slew of top Republicans are backing the bill, as are many Democrats.

"Ron Paul has the right idea on this," said Sen. Jim DeMint, R-S.C., who supports similar legislation in the Senate. "I'm just hoping we can get a clear audit. ... We need to know what they're up to."

House Republican Leader John Boehner, who signed on as a co-sponsor this month, wrote in a recent blog post that the "lack of transparency and accountability" regarding federal dollars committed by the Fed and Treasury Department raise "serious concerns" and make an audit critical.

"The Federal Reserve Transparency Act would remove all of these restrictions, and allow GAO to get real answers from the Federal Reserve to protect American taxpayers," Boehner wrote.

Unfortunately for Paul, the bill appears to be idling in the House Financial Services Committee, which is chaired by Barney Frank, D-Mass. The bill has been sitting there, gathering co-sponsors, since Paul introduced it in late February.

"You've kind of got to rely on the Democratic leadership (to move the bill along)," a Boehner aide said. "I haven't heard a lot of support from Chairman Frank."

Calls to Frank's office were not returned.

Paul acknowledged that his bill hasn't advanced but said Frank has "promised" him he will deal with his bill and is willing to give it a hearing. Paul said it's easily got the "momentum" to pass the full House.

A representative with the Federal Reserve could not be reached for comment.

Obama, though, voiced confidence in Fed Chairman Ben Bernanke last Tuesday and defended the Fed's overall ability to regulate effectively as well as his proposal to give the body more power.

"If you look at what we've proposed, we are not so much expanding the Fed's power as we are focusing what the Fed needs to do to prevent the kinds of crises that are happening again," Obama said. "We want that power to be available so that taxpayers aren't on the hook."

Sen. Bernie Sanders, I-Vt., introduced a bill similar to Paul's in the Senate in March, which so far has attracted just three co-sponsors -- DeMint and Republican Sens. David Vitter of Louisiana and Mike Crapo of Idaho.

But DeMint told FOX News last week that the measure would have a good chance of passing the Senate if supporters can push Paul's to a vote, which he said would be successful, in the House.

"I think if we can get that much attention on this bill, I don't believe senators could vote against it, if people knew what they were voting for because everyone is suspicious of the Federal Reserve," DeMint said.

Paul's underlying goal is to abolish the Federal Reserve, which he finds contemptible.

"I blame almost everything on the Fed because they create the bubbles, they create the credit," Paul said.

But the move to require an audit, which Paul described as "neutral," puts him a bit more in the congressional mainstream.

That's a change of pace. The long-time congressman's GOP primary bid was decidedly outside the mainstream. His campaign drew enthusiastic support last year, and though it wasn't enough to pose an electoral threat to the top candidates, he even staged his own September counter-convention in Minneapolis -- down the road from the official Republican National Convention in St. Paul. His "Rally for the Republic" drew more than 10,000 supporters and was complete with a rock band and a slew of faux-delegates wielding signs for their states.

Paul frequently plays the role of party and congressional outsider. Most recently, he was the lone "no" vote on last Friday's resolution to condemn the Iranian government's crackdown on protesters.

He cited constitutional concerns in that vote, as he has in his criticism of the Fed and a slew of other issues.

"The whole process is unconstitutional. There is no legal authority to operate such a monetary system," Paul said in February, in a statement calling for Washington to "end the Fed." He introduced the Federal Reserve Transparency Act the following day.

I like Walmart, and regularly am given grief for supporting what I see as the unvarnished success of capitalism. But as this piece makes clear, they are able to embrace gross inconsistency when it serves them:

Why Wal-Mart Supports an Employer Mandate

Posted by Michael F. Cannon

A couple of years ago, I shared a cab to the airport with a Wal-Mart lobbyist, who told me that Wal-Mart supports an “employer mandate.” An employer mandate is a legal requirement that employers provide a government-defined package of health benefits to their workers. Only Hawaii and Massachusetts have enacted such a law.

I couldn’t believe what I was hearing. Wal-Mart is a capitalist success story. At the time of our conversation, this lobbyist was helping Wal-Mart fight off employer-mandate legislation in dozens of states. Those measures were specifically designed to hurt Wal-Mart, and were underwritten by the unions and union shops that were losing jobs and business to Wal-Mart.

But it all became clear when the lobbyist explained the reason for Wal-Mart’s position: “Target’s health-benefits costs are lower.”

I have no idea what Target’s or Wal-Mart’s health-benefits costs are. Let’s say that Target spends $5,000 per worker on health benefits and Wal-Mart spends $10,000. An employer mandate that requires both retail giants to spend $9,000 per worker would have no effect on Wal-Mart. But it would cripple one of Wal-Mart’s chief competitors.

So yesterday’s news that Wal-Mart is publicly endorsing a “sensible and equitable” employer mandate — i.e., a mandate that hurts Target but not Wal-Mart — didn’t come as a surprise to me. It merely confirmed what I learned in a cab on the way to the airport: Wal-Mart has gone native. That great symbol of the benefits of free-market competition now joins its erstwhile enemies among the legions of rent-seeking weasels who would rather run to government for protection than earn their keep by making people’s lives better.

In 2007, Wal-Mart officially joined the Church of Universal Coverage when it entered one of those countless strange-bedfellows coalitions with the Service Employees International Union. At the time, I criticized Wal-Mart for “self-congratulatory puffery” and “jump[ing] on the big-government bandwagon.” I also criticized then-CEO Lee Scott for spouting economic nonsense. (I later learned that Scott was not amused.)

A Garden of Piggish DelightsWaxman-Markey is part power-grab, part enviro-fantasy. Here are 50 reasons to stop it.

By Stephen Spruiell & Kevin Williamson

The stimulus bill was the legislative equivalent of the famous cantina scene from Star Wars, an eye-popping collection of the freakish and exotic, gathered for dubious purposes. The Waxman-Markey cap-and-trade bill, known as ACES (the American Clean Energy and Security Act), is more like the third panel in Hieronymus Bosch’s Garden of Earthly Delights — a hellscape that disturbs the sleep of anybody who contemplates it carefully.

Two main things to understand about Waxman-Markey: First, it will not reduce greenhouse-gas emissions, at least not at any point in the near future. The inclusion of carbon offsets, which can be manufactured out of thin air and political imagination, will eliminate most of the demands that the legislation puts on industry, though in doing so it will manage to drive up the prices consumers pay for every product that requires energy for its manufacture — which is to say, for everything. Second, it represents a worse abuse of the public trust and purse than the stimulus and the bailouts put together. Waxman-Markey creates a permanent new regime in which environmental romanticism and corporate welfare are mixed together to form political poison. From comic bureaucratic power grabs (check out the section of the bill on candelabras) to the creation of new welfare programs for Democratic constituencies to, above all, massive giveaways for every financial, industrial, and political lobby imaginable, this bill would permanently deform American politics and economic life.

The House of Representatives, famously, did not read this bill before passing it, which is testament to either Nancy Pelosi’s managerial incompetency or her political wile, or possibly both. If you take the time to read the legislation, you’ll discover four major themes: special-interest giveaways, regulatory mandates unrelated to climate change, fanciful technological programs worthy of The Jetsons, and assorted left-wing wish fulfillment. We cannot cover every swirl and brushstroke of this masterpiece of misgovernance, but here’s a breakdown of its 50 most outrageous features.

SPECIAL-INTEREST SOPS1. The big doozy: Eighty-five percent of the carbon permits will not be sold at auction — they will be given away to utility companies, petroleum interests, refineries, and a coterie of politically connected businesses. If you’re wondering why Big Business supports cap-and-trade, that’s why. Free money for business, but higher energy prices for you.

2. The sale of carbon permits will enrich the Wall Street investment bankers whose money put Obama in the White House. Top of the list: Goldman Sachs, which is invested in carbon-offset development and carbon permissions. CNN reports:upping emissions of nitrous oxide — a much more powerful greenhouse gas. The practice also makes weed control more difficult, meaning that it supports the market for herbicides such as Monsanto’s RoundUp. Guess who’s spending millions lobbying for no-till?

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Less than two weeks after the investment bank announced it would be laying off 10 percent of its staff, ***Goldman Sachs confirmed that it has taken a minority stake in Utah-based carbon offset project developer Blue Source LLC. . . . “Interest in the pre-compliance carbon market in the U.S. is growing rapidly,” said Leslie Biddle, Head of Commodity Sales at Goldman, “and we are excited to be able to offer our clients immediate access to a diverse selection of emission reductions to manage their carbon risk.”

3. With its rich menu of corporate subsidies and special set-asides for politically connected industries, Waxman-Markey has inspired a new corporate interest group, USCAP, the United States Climate Action Partnership — the group largely responsible for the fact that carbon permits are being given away like candy at Christmas rather than auctioned. And who is lined up to receive a piece of the massive wealth transfer that Waxman-Markey will mandate? Canada Free Press lists:

One major group of recipients of the free money being given to industry in the form of carbon permits are the electric utilities, represented in Washington by the Edison Electric Institute. Along with the coal and steel businesses, the utilities are positioned to receive a huge portion of the carbon permits — some of which will be disguised as measures for consumers — and have become one of the nation’s highest-spending lobbies, working to ensure that their interests are served by cap-and-trade.

4. To the extent that the allowances actually generate government revenue, that money is going to be used for fraud-inviting projects of dubious environmental or economic value. Example: Some allowance money will be used to “build capacity to reduce deforestation in developing countries experiencing deforestation, including preparing developing countries to participate in international markets for international offset credits for reduced emissions from deforestation.” What are the chances of that being abused?

5. In addition to the permits, the bill also allows for the creation of “offsets” — the medieval-style indulgences of the carbon-footprint world. In fact, nearly all of Waxman-Markey’s carbon-reduction targets can be met with offsets alone through 2050, meaning decades before any actual reduction of greenhouse gases is required. That means huge new expenses for small businesses and consumers in return for basically zero environmental improvement. And how does one earn an offset to sell? Get a farm and cash in through such methods as, and we quote, “improved manure management,” “reduced tillage/no-tillage,” or “afforestation of marginal farmlands.” Translation: Plant some trees around the house and claim some extra credits on the land the government may already be paying you not to farm. And do a better job of handling your B.S. — but you’ll never do as good a job on that one as the authors of Waxman-Markey.

6. Because the cap-and-trade regime will disadvantage domestic refineries vis-à-vis foreign competitors, such as India’s powerhouse Reliance Industries, Waxman-Markey is attempting to buy them off with free permits — 2 percent of the national total will go to domestic refineries, at no cost.

7. Agribusiness is exempted from cap-and-trade controls, but the farm lobby will be given permits to sell and to profit from anyway. All carrot, no stick — precisely what this powerful industry lobby is accustomed to receiving from Washington.

8. Waxman-Markey strips the EPA of its oversight role when it comes to managing the offsets associated with American farms. At the behest of Cargill and other big players in the farm lobby, oversight will be entrusted to the USDA — basically a wholly owned subsidiary of the agriculture cartel, one of America’s most rapacious special-interest groups, which already is stuffed with subsidies and sops.

9. Waxman-Markey directs the EPA to ignore the real environmental impact of ethanol and other biofuels. The gigantic subsidies lavished on the farm lobby through the ethanol program encourage farmers to clear forest land to plant corn — a net environmental loss that the use of ethanol does nothing to offset. An earlier version of the legislation that would have accounted for land-use changes was altered at the farm lobby’s demand. Now, the EPA will be forbidden to rain the same pain on the ethanol gang that it’s going to rain on the rest of the economy — a minimum of five years’ (ahem) “study” is required before a ruling on whether ethanol should be treated the same as any other fuel, and the EPA, USDA, and Congress all must agree to act before Big Corn reaps what Waxman-Markey sows.

10. Rural electrical cooperatives are demanding that the offsets be awarded in proportion to historic emissions, and they probably will prevail. This means that high-polluting generators, such as the coal-fired plants typical of electric co-ops’ members, will be rewarded because they pollute more, while cleaner producers, such as those using nuclear and hydroelectric power, will be penalized.

11. The farm lobby will be rewarded for practices that do little or nothing to reduce greenhouse gases. One such practice is “no till” planting, in which farmers forgo plowing and plant seeds directly into the soil. Two peer-reviewed scientific papers suggest that no-till either does nothing to decrease carbon dioxide or actually increases the level of greenhouse-gas emissions by upping emissions of nitrous oxide — a much more powerful greenhouse gas. Now it’s not clear that no-till will reduce greenhouse gases, but the practice does make weed-control more difficult, meaning that it supports the market for herbicides such as Monsanto’s RoundUp. Guess who’s spending millions lobbying for no-till?

12. Waxman-Markey provides an excuse for trade protectionism. The bill will give the Obama administration broad new powers to enact tariffs on imports from jurisdictions that have not had the poor sense to enact similar legislation, meaning that it invites both politically driven trade protectionism and retaliatory measures from abroad in the service of an empty green dream. As the New York Times puts it:

Quote

A House committee working on sweeping energy legislation seems determined to make sure that the United States will tax China and other carbon polluters, potentially disrupting an already-sensitive climate change debate in Congress. The Ways and Means Committee’s proposed bill language would virtually require that the president impose an import tariff on any country that fails to clamp down on greenhouse gas emissions. Directed primarily at China, the United States’ biggest manufacturing competitor, the provisions aim to protect cement, steel and other energy-intensive industries that expect to face higher costs under a federal emissions cap

.

13. Waxman-Markey channels billions of dollars into subsidies for “international clean technology deployment for emerging markets.” David H. McCormick of the Treasury Department recently gave a speech on the establishment of an $8 billion fund for that purpose; those who showed up to gets the specs on this new gravy train included Sequoia Capital, the United Steelworkers Union, the Clinton Climate Initiative, Ernst & Young, Duke Energy, SunPower, Honeywell, Shell, ConocoPhillips, Credit Suisse, Chrysalix Energy Venture Capital, and Goldman Sachs. If you’re wondering who’s going to make real money off of Waxman-Markey, this list would be a pretty good place to start.

14. Naturally, Big Labor gets its piece of the pie, too. Projects receiving grants and financing under Waxman-Markey provisions will be required to implement Davis-Bacon union-wage rules, making it hard for non-union firms to compete — and ensuring that these “investments” pay out inflated union wages. And it’s not just the big research-and-development contracts, since Waxman-Markey forces union-wage rules all the way down to the plumbing-repair and light-bulb-changing level.

NON-CAP MANDATES15. The renewable electricity standard is the big one here. This would require utilities to supply 20 percent of their power from renewable energy sources (or “increased efficiency”) by 2020. The Senate was unable to pass a smaller mandate in 2007, because favored sources of renewable energy (wind power, for instance) just don’t work in certain regions of the country, and regional blocs can wield a great deal of power in the Senate. These blocs may be less powerful this time around, because the Democrats within them will be under a great deal of pressure to pass this bill. The renewable standard would force utilities to rely increasingly on expensive sources of energy like wind and solar — expensive because they are capital-intensive and must be located far away from urban areas, necessitating long transmission lines. You can thank Congress for adding yet another charge to your monthly utility bill.

16. The bill would create a system of renewable electricity credits similar to the carbon offsets mentioned above — utilities that cannot meet the standard could purchase credits from other utilities. One way or another, however, the cost is getting passed along to you.

17. The renewable standard excludes sources of power like nuclear and coal gasification, and perhaps that’s to be understood. Even though these sources are cleaner than traditional coal-burning plants, they violate a number of green taboos. What’s less understandable is the way “qualified hydropower” is narrowly defined to exclude hydropower from Canada. Again, the thing to remember is that Congress is less concerned with greening the environment and more concerned with greening the pockets of parochial interests.

18. The legislation calls for the establishment of a Carbon Storage Research Corporation (CSRC) to steer $1 billion annually into the development of carbon-capture technologiesy. The CSRC would be funded via assessments on utility companies. Hear that? It’s the sound of another charge being added to your bill. Evidence suggests that subsidizing research into carbon-capture technology is either futile (in the case of traditional coal-powered plants) or unnecessary (the technology for sequestering emissions from gasification plants already exists).

19. The promotion of carbon capture will require a host of new regulations — the bill calls on the EPA to create a permitting process for geologic sequestration (burying captured carbon emissions in the ground), regulations to keep the buried carbon from escaping into the air, and regulations to keep it from escaping into the water supply. All we need now are carbon guards to throw the carbon in solitary confinement if it gets too rowdy in the prison yard.

20. The bill imposes performance standards on new coal-fired power plants to encourage the adoption of carbon-capture technology. Ratepayers would pay more for electricity because of the efficiency losses associated with carbon capture.

21. The bill regulates every light fixture under the sun. Actually, the sun might be the only light source that isn’t regulated specifically in this legislation. There are rules governing fluorescent lamps, incandescent lamps, intermediate base lamps, candelabra base lamps, outdoor luminaires, portable light fixtures — you get the idea. The government actually started down this road by regulating light bulbs in the 2005 energy bill. This bill merely tightens the regulations, which means the unintended consequences produced by the 2005 bill — more expensive light bulbs that burn out quicker — will probably get worse.

22. The bill extends its reach to cover appliances as well. Clothes washers and dishwashers, portable electric spas, showerheads, faucets, televisions — all these and more are covered specifically in the bill. You thought we were kidding when we said this bill represents the federal government’s attempt to expand its regulatory reach to cover everything. We weren’t.

23. Appliances will be required to come with “carbon output” labels, and retailers will get bonus payments for marketing those that are certified “best-in-class.” The bill sets up a payment schedule to reward the manufacturers of these “best-in-class” products: $75 for each dishwasher, $250 for each clothes washer, and so on. So go out and splurge on that new super-energy-efficient refrigerator — under this bill, you already made a $200 down payment.

24. The bill requires the EPA to establish environmental standards for residences, meaning a federally dictated one-size-fits-all policy for greening every home in America. When you’re retrofitting your home according to EPA guidelines, it will come as little comfort to know that the government is reimbursing you for your troubles, especially if you’re doing the work around April 15.

25. The bill would affect commercial properties, too. In fact, all buildings would be governed by a “national energy efficiency building code” that would require 50 percent reductions in energy use in all buildings by 2018, followed by 5 percent reductions in energy use every three years after that through 2030. No one disputes that these changes will be costly, but Waxman-Markey supporters argue that they will pay for themselves through lower energy bills. This argument holds up only if we assume that energy prices will stay flat or fall over time. But the aforementioned carbon caps instituted elsewhere in this legislation make that prospect highly unlikely. Businesses and homeowners will pay twice — once to retrofit their roosts and again when the energy bill arrives.

27. It instructs the EPA to cap and reduce greenhouse-gas emissions from non-mobile sources as well. These two items would be bigger news if the Supreme Court hadn’t already cleared the way for the EPA to regulate greenhouse-gas emissions. President Obama will probably move forward on this front even if Congress fails to pass the cap-and-trade bill. He has already announced a strict national fuel-efficiency standard for cars, and the implications for other sources of greenhouse-gas emissions are not good.

28. The bill calls on the EPA to establish a federal greenhouse-gas registry. Businesses would be required to collect and submit data on their emissions to the EPA, creating yet another compliance cost for them to pass on to their customers.

29. The bill undermines federalism by prohibiting states from creating their own cap-and-trade programs. Nearly half of all U.S. states have already taken some sort of action to cap greenhouse-gas emissions by forming regional compacts and implementing their own emission standards. Understandably, these states support a federal cap so that they are not at an economic disadvantage to states that do not cap emissions. If these states want to hamstring their own economies in the pursuit of green goals, that should be their business. States that don’t see any reason to do so should not be forced to share in their folly.

GREEN DREAMS30. Utility companies are directed to start laying the groundwork for a glorious future in which everyone drives a plug-in car. The legislation directs them to start planning for the deployment of electrical charging stations along roadways, in parking garages, and at gas stations, as well as “such other elements as the State determines necessary to support plug-in electric drive vehicles.” (States are directed to consider whether the costs of planning or the implementation of these plans merit reimbursement. Either way, you wind up with the bill.

31. The secretary of energy is required to establish a large-scale vehicle electrification program and to provide “such sums as may be necessary” for the manufacture of plug-in electric-drive vehicles, including another $25 billion for “advanced technology vehicle” loans. As if Detroit hadn’t gotten its hands on enough taxpayer money.

32. The bill directs the secretary of energy to promulgate regulations requiring that each automaker’s fleet be comprised of a minimum percentage of vehicles that run on ethanol or biodiesel.

33. It includes loan guarantees for the construction of ethanol pipelines. Nearly every energy bill in the last five years has included loan guarantees for the construction of ethanol pipelines. Apparently, would-be builders of this vital infrastructure are still having problems getting financing.

34. Congress passed (and Obama signed) a “cash for clunkers” program as part of the war appropriations bill this month. Under the program, you get a rebate for trading in a used car for one that gets slightly higher mileage. The Waxman-Markey bill takes this concept and applies it to appliances, electric motors — basically anything that can be traded in for a more energy-efficient version. These types of programs generally fail cost-benefit analyses spectacularly because more energy goes into the production of the new appliances than would have been used if the old ones had just run their course.

35. The bill includes $15 billion in grants and loans to encourage the manufacture of wind turbines, solar energy, biofuel production, and other sources of renewable energy that have benefited from decades of such largesse already. Another $15 billion is not going to make these energy sources cost-competitive. Only carbon rationing can achieve that. One suspects the Democrats know this; that’s why they are pushing a carbon-rationing bill. The $15 billion is just another sop to the green-energy lobby to help grease the skids.

36. The bill establishes within the EPA a SmartWay Transport Program, which would provide grants and loans to freight carriers that meet environmental goals.

37. The bill requires the secretary of energy to establish a program to make monetary awards to utilities that find innovative ways of using thermal energy, as if utilities needed an extra incentive to discover a new, cheap energy source.

38. It includes another $1.5 billion for the Hollings Manufacturing Partnership Program. This program pops up repeatedly in discussions of programs that both liberals and conservatives think should be eliminated. It is corporate welfare, pure and simple.

39. It includes $65 million for research into high-efficiency gas turbines, another gift to the corporate world with little environmental benefit.

40. It includes $7.5 million to establish a National Bioenergy Partnership to promote biofuels. Economic barriers to the commercial viability of biofuel as an energy source have proven to be so insurmountable that even with all of the federal mandates and subsidies already thrown their way, the ethanol companies lined up with everyone else for a federal bailout when the financial crisis hit. The last thing consumers need is another full-time, federally subsidized lobbying arm for that industry.

VARIOUS LEFT-WING WISH FULFILLMENT41. One of Obama’s most reliable constituencies, college administrators, will be given billions of dollars to play with through the creation of eight “Clean Energy Innovation Centers,” university-based consortia charged with a mission to “leverage the expertise and resources of the university and private research communities, industry, venture capital, national laboratories, and other participants in energy innovation to support cross-disciplinary research and development in areas not being served by the private sector in order to develop and transfer innovative clean energy technologies into the marketplace.” Meaning that the famous business acumen of the federal government will be applied to the energy industry.

42. Another Obama constituency, the community-organizing gang — i.e., ACORN — will be eligible to receive billions in funding as the bill “authorizes the Secretary [of Energy] to make grants to community development organizations to provide financing to businesses and projects that improve energy efficiency.” Think federally subsidized consultants paid $55 an hour to tell businesses to turn down their AC in the summer.

43. Waxman-Markey also enables Obama to indulge his persistent desire to use the tax code to transfer wealth from people who pay taxes to people who don’t — i.e., from likely Republican voters to likely Obama voters. The bill “amends the Internal Revenue Code to allow certain low income taxpayers a refundable energy tax credit to compensate such taxpayers for reductions in their purchasing power, as identified and calculated by the Environmental Protection Agency (EPA), resulting from regulation of GHGs (greenhouse gases).”

44. Not only will Waxman-Markey slip more redistribution into the tax code, it will establish a new monthly welfare check. It will create an “Energy Refund Program” that will “give low-income households a monthly cash energy refund equal to the estimated loss in purchasing power resulting from this Act.”

45. Another new class of government dependents will be created by Waxman-Markey: Americans put out of work by Waxman-Markey. The bill establishes a program to distribute “climate change adjustment assistance to adversely affected workers.”

46. Waxman-Markey will create yet another raft of government dependents, but of a different sort — bureaucrats. The bill creates: a new United States Global Change Research Program, a National Climate Change Adaptation Program, a National Climate Service, Natural Resources Climate Change Adaptation Strategy office at the White House, and an International Climate Change Adaptation Program at the State Department.

47. And since everybody else is getting a check, Bambi gets one, too, in the form of money for “domestic wildlife and natural resource adaptation.”

48. States also get in on the action. The legislation allows each state to set up a State Energy and Environment Development (SEED) account into which the federal government can deposit emission allowances. States can then sell these allowances and use the proceeds to support clean-energy programs. They must set aside a certain amount of the money to fund federal mandates, but they are given broad discretion to use the rest by making loans, grants, and other forms of support available to favored constituencies. It’s federalism, of a sort — the wrong sort.

49. And, of course, everything includes a health-care component, even cap-and-trade. Waxman-Markey requires the Department of Health and Human Services to develop a “strategic action plan to assist health professionals in preparing for and responding to the impacts of climate change.”

50. Waxman-Markey dumps money into questionable “partnerships” and grants to study “emerging careers” in “renewable energy, energy efficiency, and climate change mitigation.” The first career to emerge, of course, will be managing grants to study emerging careers.

That’s our Top 50. We could go on. And on.

When Nancy Pelosi was advising congressmen to back this beast, she said they should not worry about the words of the bill they had not read, but think about four others: “jobs, jobs, jobs, jobs.” The legislation offers Pelosi perverse vindication: Waxman-Markey will create a lot of jobs for Wall Street sharps, Big Business rent-seekers, ACORN hucksters, utility-company lobbyists, grant-writers at left-wing organizations, college administrators, light-bulb-policing bureaucrats, and an army of parasitic hangers-on. It’s up to the Senate to stop it.

— Stephen Spruiell is a staff reporter for National Review Online. Kevin Williamson is a deputy managing editor of National Review.

The June employment report suggests that the alleged ‘green shoots’ are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10 percent by later this summer, around August or September, and will be closer to 10.5 percent if not 11 percent by year-end. I expect the unemployment rate is going to peak at around 11 percent at some point in 2010, well above historical standards for even severe recessions.

It’s clear that even if the recession were to be over anytime soon – and it’s not going to be over before the end of the year – job losses are going to continue for at least another year and a half. Historically, during the last two recessions, job losses continued for at least a year and a half after the recession was over. During the 2001 recession, the recession was over in November 2001, and job losses continued through August 2003 for a cumulative loss of jobs of over 5 million; this time we are already seeing more than 6 million job losses and the recession is not over.

The details of the unemployment report are even worse than the headline. Not only are there large job losses right now, but as a way of sharing the pain, firms are inducing workers to reduce hours and hourly wages. Therefore, when we’re looking at the effect of the labor market on labor income, we should consider that the total value of labor income is the product of jobs, hours, and average hourly wages – and that all three elements are falling right now. So the effect on labor income is much more significant than job losses alone.

The details also suggest that other aspects of the labor markets are worsening. If you include discouraged workers and partially-employed workers, the unemployment rate is already above 16 percent. If you consider also that temporary jobs are falling now quite sharply, labor market conditions are becoming worse. And the average duration of unemployment now is at an all-time high. So people not only are losing jobs, but they’re finding it harder to find new jobs. So every element of the labor market is worsening.

The unemployment rate rose only marginally from 9.4 percent to 9.5 percent, but that’s because so many people are discouraged that they exited the labor force voluntarily, and therefore are not counted in the official unemployment rate.

The other element of the report that must be considered is that, for the summer, the Bureau of Labor Statistics (BLS) is still adding between 150,000 and 200,000 jobs based on the birth/death model. We know the distortions of the birth/death model – that in a recession jobs created within firms are much smaller than those created by firms that are dying. So that’s distorting downward the number of job losses. Based on the initial claims for unemployment benefits, it’s more likely that the job losses are closer to 600,000 per month rather than the figures officially reported.

These job losses are going to have a significant effect on consumer confidence and consumption in the months ahead. We’ve also seen extreme weakness in consumption. There was a boost in retail sales and real personal consumption-spending in January and February, sparked by sales following the holiday season, but the numbers from April, May, and now June are extremely weak in real terms. In April and May you saw a significant increase in real personal income only because of tax rebates and unemployment benefits. In April, there was a sharp fall in real personal spending, and in May the increase was only marginal in real terms.

This suggests that the most of the tax rebates are being saved rather than consumed. The same thing happened last year. Last year, with a $100 billion tax rebate, only thirty cents on the dollar were spent while seventy cents on the dollar were saved. Last year, people expected the tax rebate to stimulate consumption through September. Instead, there was an increase in April, May, and June, with the increase fizzling out by July.

This year it’s even worse. We have another $100 billion in tax rebates in the pipeline. But the numbers suggest that in April, real consumption fell. And in May it was practically flat. So this year households are even more worried than they were last year about jobs, income, credit cards and mortgages. Most likely only around 20 cents on the dollar – rather than 30 cents last year – of that increase of income is going to be spent. In any case, that increase in income is just temporary and is going to fizzle out by the summer. So you can expect a significant further reduction in consumption in the fall after the effects of the tax rebates fade.

The other important aspect of the labor market is that if the unemployment rate is going to peak around 11 percent next year, the expected losses for banks on their loans and securities are going to be much higher than the ones estimated in the recent stress tests. You plug an unemployment rate of 11 percent in any model of loan losses and recovery rates and you get very ugly losses for subprime, near-prime, prime, home equity loan lines, credit cards, auto loans, student loans, leverage loans, and commercial loans – much bigger numbers than what the stress tests projected.

In the stress tests, the average unemployment rate next year was assumed to be 10.3 percent in the most adverse scenario. We’ll be already at 10.3 percent by the fall or the winter of this year, and certainly well above that and close to 11% at some point next year.

So these very weak conditions in the labor market suggest problems for the U.S. consumer, but also significant increasing problems for the banking system as these sharp increases in job losses lead to further delinquencies on loans and securities and lower than expected recovery rates.

The latest figures – published this week - on mortgage delinquencies and foreclosures suggest a spike not only in subprime and near-prime delinquencies, but now also on prime mortgages. So the problems of the economy are significantly affecting the banking system. Even if for a couple of other quarters banks are going to use the new Financial Accounting Standards Board (FASB) rules and under-provisioning for loan losses to report better-than-expected results, by Q4, with unemployment rates above 10 percent, that short-term accounting fudging will have a significant impact on reported earnings. And this will show the underlying weakness in the economy. So banks may fudge it for a couple of other quarters, but eventually the effects of very sharp unemployment rates and still sharply falling home prices are going to drag down earnings and have a sharp effect on losses and capital needs of the banks and of the entire financial system.

Essentially, the results today suggested that there are not as many green shoots. These green shoots, as we’ve argued, are mostly yellow weeds that may even turn into brown manure if a double dip W-shaped recession occurs in 2010-2011. And it’s not just the employment situation. Real consumption and retail sales remain weak. Industrial production remains weak. The housing market, in terms of price adjustment, remains weak, even if the quantities - demand and supply - may be closer to bottoming out. Indeed, the inventory of unsold new homes is so large that you could stop producing new homes for almost a year to get rid of that inventory. Moreover, about 50% of existing home sales are distressed sales (short sales and foreclosed homes).

The labor market conditions may have a significant effect on how long it takes for the housing market to bottom out. It’s already estimated that by the end of this year, there will be about 8.4 million people who have a mortgage who have lost jobs, and therefore have essentially little income. Therefore, the number of people who will have difficulties servicing their mortgages is going to rise very sharply.

Home prices have already fallen from their peak by about 27 percent. Based on our analysis, they are going to fall by at least another 40 percent, and more likely 45 percent, before they bottom out. They are still falling at an annualized rate of over 18 percent. That fall of at least 40-45% percent of home prices from their peak is going to imply that about half of all households that have a mortgage – about 25 million of the 51 million that have mortgages – are going to be underwater with negative equity in their homes, and therefore will have a significant incentive to just walk away from their homes.

The job market report is essentially the tip of the iceberg. It’s a significant signal of the weaknesses in the economy. It affects consumer confidence. It affects labor income. It affects consumption. It affects the willingness of firms to start increasing production. It has significant consequences of the housing market. And it has significant consequences, of course, on the banking system.

Overall, it’s an extremely weak report and suggests that weakness in the labor markets is going to continue, and that the recession is more likely to continue through the end of the year and the beginning of next year. It also suggests that recovery will be anemic, subpar, below trend. We are still estimating that U.S. growth next year is going to be 1 percent above the 2009 level, well below a potential growth rate of 3 percent. This is because there is little deleveraging of households, corporate firms and financial institutions while there is a massive re-leveraging of the public sector with sharply rising deficits and debts as many of the private losses have been socialized.

There are also signs that there may be forces leading to a double-dip recession, sometime toward the second half of next year or towards 2011. If oil prices rise too much, too fast, too soon, that’s going to have a negative effect on trade and real disposable income in oil-importing countries (US, Europe, Japan, China, etc.). Also concerns about unsustainable budget deficits are high and are going to remain high, with growth anemic and unemployment rising. These deficits are already pushing long-term interest rates higher as investors worry about medium- to long-term stability. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, you are going to have a sharp increase in expected inflation - after three years of deflationary pressures - that’s going to push interest rates even higher.

For the time being, of course, there are massive deflationary pressures in the economy: the slack in the goods markets, with demand falling relative to supply-and-excess capacity. The rising slack in labor markets, which are controlling wages and labor costs and pushing them down, implies that deflationary pressures are going to be dominant this year and next year.

But eventually, large budget deficits and their monetization are going to lead – towards the end of next year and in 2011 – to an increase in expected inflation that may lead to a further increase in ten-year treasuries and other long-term government bond yields, and thus mortgage and private-market rates. Together with higher oil prices driven up in part by this wall of liquidity rather than fundamentals alone, this could be a double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011. So the outlook for the US and global economy remains extremely weak ahead. The recent rally in global equities, commodities and credit may soon fizzle out as an onslaught of worse- than-expected macro, earnings and financial news take a toll on this rally, which has gotten way ahead of improvement in actual macro data.

Freki, Thanks for the video of Michele Bachmann calling out this government for what it is. I wish it was just overblown rhetoric of a far right conservative but every word of it unfortunately is true. - Doug

Oil, Gas Market Speculation May Face Restrictions by U.S. CFTC Share | Email | Print | A A A

By Tina Seeley

July 7 (Bloomberg) -- U.S. regulators say they may clamp down on oil and gas price speculators by limiting the holdings of energy futures traders, including index and exchange-traded funds.

The Commodity Futures Trading Commission will hold hearings to explore the need for government-imposed restrictions on speculative trading in oil, gas and other energy markets, Chairman Gary Gensler said today in a statement. The agency didn’t say when the hearings would start or who would be asked to testify.

Senator Bernie Sanders, a Vermont independent, and Representative Bart Stupak, a Michigan Democrat, have called for action to avoid a repeat of last year’s run-up in crude oil prices to a record $147.21 a barrel, which they blame on speculators. Oil has climbed 44 percent this year in New York Mercantile Exchange trading, even amid a drop in demand and high levels of fuel in storage.

“Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities, such as crude oil, heating oil, natural gas, gasoline and other energy products,” Gensler said in the statement. “This will include a careful review of the appropriateness of exemptions from these limits for various types of market participants.”

Billionaire investor George Soros told a Senate hearing in June 2008 that the oil price increase that year was caused partly by index funds that buy only oil contracts. Index funds and exchange-traded funds, which mimic an index, can hold oil contracts in excess of available supply.

Emergency Authority

Sanders has introduced legislation that would force the CFTC to invoke emergency authority to stop oil speculation. The agency is seeking input on whether it should impose aggregate position limits, Gensler said.

Gensler said in a letter to lawmakers earlier this year that speculators contributed to an asset bubble in commodities in 2008. His statement broke from former CFTC Acting Chairman Walter Lukken, who testified to Congress on Sept. 11 that there wasn’t “strong evidence” index traders were driving up prices.

Gensler wouldn’t say in an interview last week if he thought the same thing was happening this year.

“The CFTC currently sets and ensures adherence to position limits with respect to certain agriculture products,” Gensler said in the statement. “For energy commodities, futures exchanges set position limits and accountability levels to protect against manipulation and congestion. The exchanges are not required to set and enforce position limits to prevent the burdens of excessive speculation.”

‘Bona Fide Hedging’

The chairman said the CFTC is reviewing exemptions from position limits for “bona fide hedging,” after seeking public comment on whether the exemption should continue to apply to traders who are in the market for financial reasons, rather than those that actually use the commodity.

Gensler also said the agency was going to improve its weekly commitment of traders’ reports by separating swaps dealers from hedge funds. The agency will continue to collect and report data from swaps dealers and index investors, extending a “special call” from last year, Gensler said.

“Enhancing the quality of information in these weekly reports will better inform market participants and the public about the positions of the various types of traders,” he said.

Really, how hard is it to find a job? Was June's horrid numbers, in which 467,000 people lost their jobs compared to 345,000 in May, a one-time fluke? Or does it mean that all those Wall Street economists who believe the economic recovery is starting are dead wrong?

Not to scare you, but the situation is actually worse than it seems. Over the years, the government has changed the way it counts the unemployed. An example of this is the criticized Birth-Death Model which was added in 2000. The model is designed to account for the birth and death of businesses and the resultant lag in survey data. Unfortunately, the model doesn't work that well during economic contractions (like we have now) and consistently overstates the number of jobs being created each month.

John Williams of Shadow Government Statistics specializes in removing these questionable tweaks to the government's statistical data to better align current numbers with the methodology used to gather historical data. After reviewing the data, Williams believes that "the June jobs loss likely exceeded 700,000." David Rosenberg of Gluskin Sheff notes that the fall in the number of hours worked in June (to a record low of 33 per week) is equivalent to a loss of more than 800,000 jobs.

There are similar issues with the way the unemployment rate is measured. The headline rate only jumped from 9.4% to 9.5% because of a drop in the number of people in the workforce. The more inclusive "U-6" measure of unemployment, which includes discouraged workers, jumped from 16.4% to 16.5%. But even this doesn't adequately capture the situation on the ground: Back in the Clinton Administration, the definition of discouraged worker was changed to only include those that had given up looking for work because there were no jobs to be had within the last year.

By adding these folks back in, William's SGS-Alternate Unemployment Measure rose to a jaw-dropping 20.6%. Separately, the Center for Labor Market Studies in Boston puts U.S. unemployment at 18.2%. Any way you cut the numbers, the situation is very bad. According to David Rosenberg, one-in-three among the unemployed have been looking for a job for more than six months and still can't find one.

This brings us to another issue: expiring unemployment benefits. Continuing unemployment claims fell 53,000 to 6.7 million last week, but Deutsche Bank's chief U.S. economist Joseph LaVorgna wonders how much of this decline is due people exhausting their standard 26-week benefit. He says: "We are concerned about what will happen when a significant share of out-of-work individuals' benefits completely expire, because this could lead consumer spending to re-weaken, hence jeopardizing a fragile recovery."

Unless the economy starts getting traction here in the third quarter, we could face a situation where people find that they have no job and no unemployment benefits. For these people, 2009 will feel an awful lot like 1932. As a result, spending cuts will be deep and dramatic.

My positions

The ongoing job losses will continue to weigh on the retail sector -- which was one of the best performing groups coming out of the March low. I've added short positions in Target (TGT), Macy's (M), and Office Depot (ODP) to my portfolio. Besides penny-pinching consumers, retailers face a federal minimum wage increase as well as a tough back-to-school and holiday shopping season.

Disclosure: The author does not own or control a position in any of the funds or companies mentioned.

If you thought last week’s job numbers were bad, take a look at the latest from Morgan Stanley’s chief economist, Richard Berner.

In a research note that’s been making the rounds of economics blogs this week, Berner declares that “America’s long-awaited fiscal train wreck is now under way.”

By “train wreck,” he means out-of-control federal budget deficits that he’s sure will finally drag the economy under — as if we weren’t already feeling badly enough about its shaky state.

“Depending on policy actions taken now and over the next few years, federal deficits will likely average as much as 6 percent of [the gross domestic product] through 2019, contributing to a jump in debt held by the public to as high as 82 percent of GDP by then — a doubling over the next decade,” Berner writes on Morgan Stanley’s online Global Economic Forum.

July 9 (Bloomberg) -- The $3.5 trillion commercial real estate market is a ticking “time bomb” that may lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.

About $700 billion in commercial mortgages will need to be refinanced before the end of 2010 and “doing nothing is not an option,” Maloney, a New York Democrat, said at a committee hearing today. This “looming crisis” may lead to significant losses for banks, force shopping center and hotel owners into bankruptcy, and impede economic recovery, she said.

The response by banks to this “growing threat has been slow and inadequate,” said James Helsel, a partner at RSR Realtors in Harrisburg, Pennsylvania, and treasurer for the National Association of Realtors. “The lack of liquidity and banks’ reluctance to extend lending are also becoming apparent in the increasing level of delinquent properties.”

There were 5,315 commercial properties in default, foreclosure or bankruptcy at the end of June, more than twice the number at the end of last year, with hotels and retail among the most “problematic,’ Real Capital Analytics Inc. said in a report yesterday. Losses on commercial mortgage-backed securities, or CMBS, will total 9 percent to 12 percent of the market, or as much as $90 billion, said Richard Parkus, a research analyst for Deutsche Bank Securities in New York.

Bottom Not Near

The bottom is several years away, and it will be at least 2012 before there is “palpable improvement” in the commercial real estate market, Parkus told lawmakers at the hearing. “It’s hard to imagine fundamentals improving in an environment where we are beginning to see massive increases in defaults.”

The largest concentration of distressed properties is in New York City, Helsel said. Las Vegas, Los Angeles, Detroit, Phoenix, Chicago, Dallas and Boston also have high distress rates, he said.

A tightening in issuance of CMBS, which used to account for about 30 percent of financing, has exacerbated problems, Jon D. Greenlee, the Federal Reserve’s associate director for banking supervision and regulation, said in prepared testimony today. A disproportionately high number of small and medium-sized banks have “sizable exposure” to commercial real estate loans, and delinquency rates at around 7 percent in the first quarter are almost double from a year ago, he said.

“Market participants anticipate these rates will climb higher by the end of this year, driven not only by negative fundamentals but also borrowers’ difficulty in rolling-over maturing debt,” Greenlee said. “In addition, the decline in CMBS has generated significant stresses on the balance sheets of institutions that must mark these securities to market.”

Fed Programs

The Federal Reserve has expanded its Term Asset-Backed Securities Loan Facility, or TALF, to new and existing commercial mortgage backed securities to jump start the market. Maloney said the Public Private Investment Program, or PPIP, may also help with the problem as officials release more details of its potential use.

Maloney said the TALF program expires at the end of this year, which may short cut its effectiveness “just as it begins to ramp up.” She also said that uncertainty about the future of the PPIP has kept many investors “on the sidelines, so there’s some urgency to the Treasury providing additional clarity about the program.”

Former Vice President Al Gore declared that the Congressional climate bill will help bring about “global governance.”

“I bring you good news from the U.S., “Gore said on July 7, 2009 in Oxford at the Smith School World Forum on Enterprise and the Environment, sponsored by UK Times.

“Just two weeks ago, the House of Representatives passed the Waxman-Markey climate bill,” Gore said, noting it was “very much a step in the right direction.” President Obama has pushed for the passage of the bill in the Senate and attended a G8 summit this week where he agreed to attempt to keep the Earth's temperatures from rising more than 2 degrees C.

Gore touted the Congressional climate bill, claiming it “will dramatically increase the prospects for success” in combating what he sees as the “crisis” of man-made global warming.

“But it is the awareness itself that will drive the change and one of the ways it will drive the change is through global governance and global agreements.” (Editor's Note: Gore makes the “global governance” comment at the 1min. 10 sec. mark in this UK Times video.)

Gore's call for “global governance” echoes former French President Jacques Chirac's call in 2000.

On November 20, 2000, then French President Chirac said during a speech at The Hague that the UN's Kyoto Protocol represented "the first component of an authentic global governance."

“For the first time, humanity is instituting a genuine instrument of global governance,” Chirac explained. “From the very earliest age, we should make environmental awareness a major theme of education and a major theme of political debate, until respect for the environment comes to be as fundamental as safeguarding our rights and freedoms. By acting together, by building this unprecedented instrument, the first component of an authentic global governance, we are working for dialogue and peace,” Chirac added.

Former EU Environment Minister Margot Wallstrom said, "Kyoto is about the economy, about leveling the playing field for big businesses worldwide." Canadian Prime Minster Stephen Harper once dismissed UN's Kyoto Protocol as a “socialist scheme.”

'Global Carbon Tax' Urged at UN Meeting

In addition, calls for a global carbon tax have been urged at recent UN global warming conferences. In December 2007, the UN climate conference in Bali, urged the adoption of a global carbon tax that would represent “a global burden sharing system, fair, with solidarity, and legally binding to all nations.”

“Finally someone will pay for these [climate related] costs,” Othmar Schwank, a global tax advocate, said at the 2007 UN conference after a panel titled “A Global CO2 Tax.”

Schwank noted that wealthy nations like the U.S. would bear the biggest burden based on the “polluters pay principle.” The U.S. and other wealthy nations need to “contribute significantly more to this global fund,” Schwank explained. He also added, “It is very essential to tax coal.”

The 2007 UN conference was presented with a report from the Swiss Federal Office for the Environment titled “Global Solidarity in Financing Adaptation.” The report stated there was an “urgent need” for a global tax in order for “damages [from climate change] to be kept from growing to truly catastrophic levels, especially in vulnerable countries of the developing world.”

The tens of billions of dollars per year generated by a global tax would “flow into a global Multilateral Adaptation Fund” to help nations cope with global warming, according to the report.

Schwank said a global carbon dioxide tax is an idea long overdue that is urgently needed to establish “a funding scheme which generates the resources required to address the dimension of challenge with regard to climate change costs.”

'Redistribution of wealth'

The environmental group Friends of the Earth advocated the transfer of money from rich to poor nations during the 2007 UN climate conference.

"A climate change response must have at its heart a redistribution of wealth and resources,” said Emma Brindal, a climate justice campaigner coordinator for Friends of the Earth.

[Editor's Note: Many critics have often charged that proposed climate tax and regulatory “solutions” were more important to the promoters of man-made climate fears than the accuracy of their science. Former Colorado Senator Tim Wirth reportedly said, "We've got to ride the global warming issue. Even if the theory of global warming is wrong, we will be doing the right thing — in terms of economic policy and environmental policy."]http://www.climatedepot.com/a/1893/G...bal-Governance

"The total potential federal government support could reach up to $23.7 trillion," says Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, in a new report obtained Monday by ABC News on the government's efforts to fix the financial system.

Yes, $23.7 trillion.

"The potential financial commitment the American taxpayers could be responsible for is of a size and scope that isn't even imaginable," said Rep. Darrell Issa, R-Calif., ranking member on the House Oversight and Government Reform Committee. "If you spent a million dollars a day going back to the birth of Christ, that wouldn't even come close to just $1 trillion -- $23.7 trillion is a staggering figure."

Granted, Barofsky is not saying that the government will definitely spend that much money. He is saying that potentially, it could.

At present, the government has about 50 different programs to fight the current recession, including programs to bail out ailing banks and automakers, boost lending and beat back the housing crisis.

Barofsky's estimate means that if each federal agency spends the maximum potential amount involved in these 50 different initiatives -- if the Federal Reserve ends up spending $6.8 trillion on its programs. If the Treasury Department spends $4.4 trillion, if the Federal Deposit Insurance Corporation spends $2.3 trillion, and so on -- then the numbers add up to a total of $23.7 trillion.

That figure, Barofsky notes, is designed to "suggest the scale and scope of these efforts and not to provide a firm financial statement." It is not a figure that has been evaluated to give an estimate of likely net costs to the American taxpayer. "The actual potential for losses," he says, "is likely to be lower."

But in his new quarterly report to Congress that will be released Tuesday, the watchdog warns that hundreds of billions of taxpayer dollars could be lost if the government does not make certain changes to these programs. The Treasury Department, he cautions, needs to increase the transparency of the $700 billion TARP program, which he says has grown to an unprecedented scope and scale.

"Although Treasury has taken some steps toward improving transparency in TARP programs, it has repeatedly failed to adopt recommendations that SIGTARP believes are essential to providing basic transparency and fulfill Treasury's stated commitment to implement TARP with the highest degree of accountability and transparency possible," Barofsky says in the report.

Barofsky said his office currently has 35 ongoing civil or criminal investigations.

Treasury Should Require TARP Recipients to Report on Use of Funds, Says Barofsky

Barofsky notes that there are currently four specific recommendations that the Treasury Department has not adopted. The department, he believes, should require all TARP recipients to report on their use of funds. The department should also report on the values of its TARP portfolio so taxpayers know about the value of their investments; disclose the identity of any TALF borrowers; and disclose tradings, holdings and valuations of assets of the public-private investment funds that will be buying toxic assets from banks.

This public-private investment program is a key source of concern for the watchdog. In the program, a handful of selected funds will purchase toxic assets -- like mortgage-backed securities -- from banks in an effort to cleanse their balance sheets and help them increase lending.

In his last quarterly report in April, Barofsky cautioned that many aspects of the toxic asset program left it vulnerable to fraud, waste and abuse, such as conflicts of interest for fund managers, collusion with fund managers, money laundering and misuse with the Fed's lending program, known as the TALF.

Since then, Treasury has incorporated many of the watchdog's recommendations, so now "the program has a significantly improved compliance and fraud-prevention regime than that initially proposed," Barofsky says. However, he warns that "there remain some significant areas in which Treasury's plan for PPIP falls short."

One such area is the lack of an informational barrier -- or a wall -- between fund managers making investment decisions on behalf of the program and employees of the fund management company who manage funds that are not part of the program. A fund manager, Barofsky warns, "could generate massive profits in its non-PPIF funds as a result of an unfair advantage."

Treasury has declined to put such a wall in place.

"Failure to impose a wall will leave Treasury vulnerable to an accusation that has already been leveled against it -- that Treasury is using TARP to pick winners and losers and that, by granting certain firms PPIF manager status, it is benefiting a chosen few at the expense of the dozens of firms that were rejected, of the market as a whole, and of the American taxpayer," Barofsky says. "The reputational risk is not one that can be readily measured in dollars and cents, but is rather a risk that could put in jeopardy the fragile trust the American people have in TARP and, by extension, their Government."

Barofsky to Testify Tuesday on Report's Findings

Barofsky also wants the department to increase the disclosure of trading activities and holdings of the program's investment funds."

"Such transparency not only dissuades misconduct and promotes sound management but also promotes a better understanding of PPIP and thus enhances the credibility of PPIP and TARP more broadly," he says. "Even more importantly, the most significant investors in each PPIF, the American taxpayers, have a right to know the status of their investments. The lack of transparency as to what use TARP funds were put by recipients in other TARP programs, in SIGTARP's view, has damaged the credibility of TARP and therefore may have threatened its viability. Treasury should not repeat that apparent error with PPIP."

However, the department, Barofsky says, plans to disclose "no more than the bare minimum required by statute."

With nearly $24 trillion potentially flying out of federal coffers, the watchdog wants the government to do a lot more than just "the bare minimum."

When Barofsky testifies before the House Oversight and Government Reform Committee on Tuesday, Congress is expected to sound off on the watchdog's findings.

In a separate report released Monday, Barofsky said he obtained responses from banks on what they did with TARP funds, something that the Treasury Department has refused to do. Many of the banks, he said, used some funds to make investments, buy other banks and pay off debts.

"This administration promised an 'unprecedented level' of accountability and oversight, but as this report reveals, they are falling far short of that promise," Issa said. "In fact, the Treasury Department is actively obstructing transparency. The American people deserve to know how their tax dollars are being spent -- especially considering they are the ones who are footing the bill."

Fiscal Policy: What do you do when you have bad news that could affect what you're doing? Why, delay it, of course. Which is exactly what the White House is doing right now with the midsession budget estimate.

Each year, a revised budget estimate is put out in July. The idea is to catch up with fiscal changes that have been made since the last budget forecast six months earlier.This year, of course, there have been massive — not too strong a word — changes in the spending outlook. That's not just our opinion. It's based on preliminary data from the Congressional Budget Office, budget analysts and think tanks of all ideological stripes.

But instead of issuing the July outlook as planned, the White House has postponed it until mid-August. Why? President Obama has made clear he wants major health care reform and, if possible, a global warming bill from Congress before it recesses in August.

But as the costly details of these bills become known, average Americans are coming to realize they'll be on the hook for trillions of dollars of new spending that will do little to improve either health care or the amount of CO2 in the air.

With the popularity of the White House and Democrats in Congress plummeting, generic congressional preference polls now show Republicans leading Democrats. So for the latter, it's now or never. They're afraid voters will reject these expensive programs. And they're right.

What's shocking isn't that the White House would put off the July budget estimate until August — so no one can see how bad our deficits really are — but that it's being done so openly. Recall that President Obama vowed when he took office that "transparency will be the touchstone of my administration."

Unfortunately, the decision to put off the mid-summer budget update until August negates that. It is, frankly, deceptive and deeply dishonest. It's hiding bad news about worsening deficits and growing unemployment to get a big spending agenda through Congress.

Recall that earlier deficit estimates put the red ink through 2019 at $9.3 trillion — or nearly $1 trillion a year. But this year alone the deficit will be $1.8 trillion, and if brisk growth doesn't resume soon, future deficits will be far greater than estimated.

As it is, even with the administration's highly bullish GDP growth estimates of more than 4% for 2011, 2012 and 2013, the deficit never drops below $600 billion in the next decade.So, how bad could it get? Take just one program as an example.

According to congressional testimony scheduled for Tuesday from Neil Barofsky, special inspector general for the Troubled Asset Relief Program (TARP), we have a monster on our hands.TARP, begun as a "modest" $700 billion program to buy up bad mortgages, has morphed into a Hydra-headed 12 programs wrapped up in one, with $3 trillion in government commitments.But here's the bombshell: According to Barofsky's prepared comments, which IBD obtained Monday, total efforts to "stabilize and support the financial system" since 2007 could eventually "reach up to $23.7 trillion." Such numbers are, in a word, stunning.

Add to this the $1 trillion-plus planned for health care reform over the next 10 years and the $1 trillion to $3 trillion cost for cap-and-trade, and you can see the deficits will be enormous, pervasive and permanent — requiring unparalleled tax hikes.

Eventually, the total take by government at all levels will be well over 50% of GDP — enough to sink the U.S. economy into a state of semi-permanent stagnation, a socialist stupor.Good governance begins with honesty. Unfortunately, the Democrats' plans to expand the scope and reach of government to nearly every part of Americans' lives have been marked by fiscal deception and budget chicanery. The American people deserve better.

US banks warn on commercial propertyBy Francesco Guerrera and Greg Farrell in New YorkPublished: July 22 2009 19:21 | Last updated: July 22 2009 19:21

Two of America’s biggest banks, Morgan Stanley and Wells Fargo, on Wednesday threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loans.

The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.

The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.

Colm Kelleher, Morgan Stanley’s chief financial officer, said he did not see the light “at the end of the commercial real estate tunnel yet”, after the bank reported a $700m writedown on its $17bn commercial property portfolio in the second quarter. “Peak to trough, you have already had a pretty nasty correction in the market but it is still not looking very good at the moment,” he said after Morgan Stanley reported its third straight quarterly loss.

Wells Fargo saw non-performing loans in commercial real estate jump 69 per cent, from $4.5bn to $7.6bn in the second quarter as the economic downturn caused developers and office owners to fall behind in their mortgage payments.

Shares in the San Francisco-based bank were down more than 3 per cent at $24.55 in the early afternoon in New York as the increase in commercial non-performing loans undermined news of its best-ever quarterly profit. Morgan Stanley shares dipped before moving higher.

Ben Bernanke, chairman of the Federal Reserve, was repeatedly questioned by lawmakers on commercial real estate while testifying to Congress on Wednesday.

Mr Bernanke warned that a continued deterioration in commercial property, where prices have fallen by about 35 per cent since the market’s peak and defaults have been rising sharply, would present a “difficult” challenge for the economy.

He added that one of the main problems was that the market for securities backed by commercial mortgages had “completely shut down”.

The widespread weakness in commercial real estate is a crucial issue for US banks, especially regional lenders that ramped up their exposure to local developers in the easy credit boom that preceded the crisis.

“The commercial real estate market is soft, and most of the big banks are seeing the same kind of thing,” said Howard Atkins, chief financial officer of Wells Fargo.

"Mr Bernanke warned that a continued deterioration in commercial property, where prices have fallen by about 35 per cent since the market’s peak and defaults have been rising sharply, would present a “difficult” challenge for the economy."----

Make sure I have this right - We announce a new commitment to punish production, employment, investment, commerce and profits and the result is double digit unemployment and collapsed demand for the rental or purchase of business space. That makes sense and I think people here get it, but I wonder if the typical voter/constituent of Barbara Boxer or Amy Klobuchar or Chuck Schumer understands what Bernancke is trying to tell them - You don't have to be an owner of Commercial real estate to be hurt by a collapse in that market. Just like you didn't have to be a buyer of yachts to be hurt by a tax on the purchasing of yachts. You don't have to be an employer to be hurt by another costly and unnecessary mandate on employers. If you are middle or lower class worker, you or your loved ones (not wealthy) will be hurt by another tax on the wealthy. As participants in the economy, we share the economy with the other participants. It is not an us vs. them ("Make the rich pay their fair share") economy. It is all inter-related and intertwined. I didn't see the movie, but when the front end of the Titanic goes under it doesn't mean more desserts will be available for those in the middle and the back. (This should have been a rant.) What we are seeing is an avoidable, man-made disaster of self-inflicted wounds IMHO.

Does this seem stupid or what? Federal money to help people buy cars, and of course stimulate Governement Motors.Hopefully the majority of non Dem diehard Americans are waking up to how we are being screwed over by the radicals in government.The joke is on us:

Friday, July 24, 2009 $1 billion 'Cash for clunkers' program to kick off MondayDavid Shepardson / Detroit News Washington BureauWashington -- The National Highway Traffic Safety Administration will release a final regulation today, clearing the way for the launch of the $1 billion federal "Cash for Clunkers" program.

The program gives buyers of new, more fuel-efficient vehicles up to $4,500 in government rebates to turn in cars and trucks up to 25 years old that in most instances get less than a combined highway/city fuel efficiency of 18 miles per gallon.

NHTSA's final rule will explain the process for registering dealers, the manner in which dealers will be reimbursed for eligible transactions, the requirements and procedures for disposing of trade-in vehicles, and the means for enforcing the program's requirements. NHTSA is working to guard against fraud, but also to ensure prompt payment.

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Transportation Secretary Ray LaHood will kick off the program on Monday with an event at the department's headquarters that will include fuel-efficient vehicles from major manufacturers and some members of Congress.

Charles Territo, a spokesman for the Alliance of Automobile Manufacturers, the trade group representing General Motors Co., Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp. and six other automakers, said the program should help customers with the purchase of about 250,000 vehicles. But once the money runs out, there is no guarantee that Congress will approve more funds.

Similar programs -- though typically less restrictive -- in other countries have dramatically boosted auto sales.

Chrysler Group LLC has offered to match the $4,500 government rebate with its own $4,500 rebate on new vehicles. Chrysler's rebate also applies to people buying new cars who don't qualify for the government rebate.

The federal program ends Nov. 1 even if consumers haven't exhausted the rebates. The vouchers apply only to new vehicles that cost $45,000 or less, and consumers must have owned the driveable clunkers for the past year.

Obamanomics 101: The Bad News Is, the Good News Isn’t Really That Goodposted at 8:47 am on July 28, 2009 by The Other McCain

The Boss today calls attention to a New York Times feature about unemployment:

It’s bad enough that the unemployment rate has doubled in only a year and a half and one out of six construction workers is out of work. What truly troubles President Obama’s economic advisers is that, even adjusting for the recession, the contraction in employment seems way too high. . . .The Federal Reserve now expects unemployment to surpass 10 percent . . . The economy has shed 6.5 million jobs . . . Economists fear that even when the economy turns around, the job market will be stagnant.Even while the media keeps pushing “recovery” talk, the further ahead you look, the scarier it gets:The global economy may fall back into a recession by late 2010 or 2011 because of rising government debt, higher oil prices and a lack of job growth, said Nouriel Roubini, the New York University economist who predicted the credit crisis. A “perfect storm” of fiscal deficits, rising bond yields, “soaring” oil prices, weak profits and a stagnant labor market could “blow the recovering world economy back into a double-dip recession,” he wrote . . .Did anybody notice that the FDIC took over six banks Friday, bringing the year-to-date total to 64 bank failures? And there’s more trouble on the horizon for the banking industry:Regional banks can no longer ignore the elephant in the room — their exposure to the commercial real estate bust . . . analysts expect credit problems over the next year to center on commercial real estate — mortgages on office and apartment buildings and shopping malls, as well as construction, development and industrial loans. U.S. banks hold some $1.8 trillion worth of commercial loans, according to Federal Reserve data . . . With financing markets locked up and the economy still mired in recession — unemployment is at a 26-year high while capacity utilization, a key measure of industrial production, recently hit a record low — observers fear a wave of loans will go bad in coming quarters . . .People who read headline saying the worst is over need to read the fine print in those stories. If the headline says “June New Home Sales Up,” for example, be sure to pay attention to the bad news about the good news:However, sales are still 28% below the levels of a year ago, when new homes sold in June at an annualized rate of 530,000. Four years ago, during the height of the housing boom, the sales rate for June was 1,374,000, nearly three-and-a-half times higher than last month. . . .Look at what analysts told the Wall Street Journal:“[T]he dismal state of the U.S. labor market will continue to cast a long shadow over the prospects for a meaningful recovery in the sector in the near term . . .”“[T]he report showed a sharp 6% sequential decline in June suggesting that much of the sales activity was concentrated at the lower end of the market . . .”“The news sounds better than it looks . . . despite the jump in sales in June, new home sales remain at very low levels, and the not seasonally adjusted data show a total of 36,000 homes sold nationwide in June, the lowest sales total for June since 1982.”Hey, how good can the economy be, if Tim Geithner can’t sell his house? The two-week stock-market surge — which saw the Dow Jones Industrial Average zoom up about 800 points before the rally ended Friday — was fueled in large measure by a constant media drumbeat of “recovery is near” messages. Allen Abelson of Barron’s is getting tired of the happy-talk:The melancholy fact is that our ink, online and TV colleagues can be too easily snookered by Washington, Wall Street and Corporate America, all of whom are desperately peddling recovery rather than reality.One of the things that make it hard for people to figure out which way the economy is heading is that analysts shy away from outright predictions:Like being a weatherman who never gets around to saying firmly, “It’s gonna rain tomorrow,” you’re always 100% accurate.Me? I boldly say, “Bring your umbrella.” As I first explained in December at The American Spectator, the most important thing to understand about Obamanomics is It Won’t Work. The neo-Keynesian deficit-spending “stimulus” approach, which began with Henry Paulson and the Bush administration, is the exact opposite of what the economy needs, because The Fundamentals Still Suck.Obamanomics flunks in terms of the basics. There is nothing in economic history to support the belief that the agenda currently being pursued in Washington will lead to real recovery. Jimmy Carter-style “stagflation” is a much more likely result.

New GeographerGreen Jobs Can't Save The EconomyJoel Kotkin, 08.04.09, 12:01 AM ETNothing is perhaps more pathetic than the exertions of economic developers and politicians grasping at straws, particularly during hard times. Over the past decade, we have turned from one panacea to another, from the onset of the information age to the creative class to the boom in biotech, nanotech and now the "green economy."

This latest economic fad is supported by an enormous industry comprising nonprofits, investment banks, venture capitalists and their cheerleaders in the media. Their song: that "green" jobs will rescue our still weak economy while saving the planet. Ironically, what they all fail to recognize is that the thing that would spur green jobs most is economic growth.

All told, green jobs constitute barely 700,000 positions across the country--less than 0.5% of total employment. That's about how many jobs the economy lost in January this year. Indeed a recent study by Sam Sherraden at the center-left New America Foundation finds that, for the most part, green jobs constitute a negligible factor in employment--and will continue to do so for the foreseeable future. Policymakers, he warns, should avoid "overpromising about the jobs and investment we can expect from government spending to support the green economy."

This is true even in California, where green-job hype has become something of a fetish among self-styled "progressives." One recent study found that the state was creating some 10,000 green jobs annually before recession. To put this into context, the total state economy has lost over 700,000 jobs over the past year (more than 200,000 in Los Angeles County alone). Any net growth in green jobs has barely made a dent in any economic category; only education and health services have shown job gains over this period.

More worrisome, in terms of national competitiveness, the green sector seems to be going in the wrong direction. The U.S.'s overall "green" trade balance has moved from a $14.4 billion surplus in 1997 to a nearly $9 billion deficit last year. As the country has pushed green energy, ostensibly to free itself from foreign energy, it has become ever more dependent on countries such as China, Japan and Germany for critical technology. Some of this is directly attributable to the often massive subsidies these countries offer to green-tech companies. But as New America's Sherraden puts it, this "does not augur well for the future of the green trade balance."

Nor are we making it any easier for American workers to gain from green-related manufacturing. Some of America's "greenest" regions are inhospitable for placing environmentally oriented manufacturing facilities. For example, high taxes and regulatory climate have succeeded in intimidating solar cell makers from coming to green-friendly California; a manufacturer from China told the Milken Institute's Ross DeVol that the state's "green" laws precluded making green products there.

Attempts to put windmills in Nantucket, Mass., the Catskills and Jones Beach in New York and other scenic areas have also been blocked by environmentalist groups. Transmission lines, necessary to take "renewable" energy from distant locales to energy-hungry cities, often face similar hurdles. Solar farms in the Mojave desert might help meet renewable energy quotas but, as wildlife groups have noted, may not be so good for local fauna.

And then there is the impact of green policies on the overall economy. Green power is expensive and depends on massive subsidization, with government support levels at roughly 20 times or more per megawatt hour than relatively clean and abundant natural gas. Lavishing breaks for Wall Street investors and favored green companies also may be harmful to the rest of the economy. A recent study on renewable energy subsidies on the Spanish economy found that for every "green" job created more than two were lost in the non-subsidized economy.

So how do we build a green economy that is sustainable without massive subsidies? First, governments need to learn how to say no to some environmentalists. Green jobs and renewable energy can not be fully developed without affecting somebody's backyard. Windmills will have to be built in some scenic places; transmission lines may mar somebody's "view-shed."

Arguably, the thing that would spur green jobs and domestic industries most would be economic growth. Environmentalists long have been cool to growth, since they link it to carbon production and other noxious human infestations. As an official at the Natural Resources Defense Council put it, the recession has "a moment of breathing room." Disaster may be still looming, but bad times add a few more moments to our carbon clock.

Long term, though, I would argue hard times may prove harmful for the environmental cause. Even with subsidies, many renewable energy projects are now on hold or being canceled across the country. Slackening energy demand, brought on by a weak economy, has undermined the case for new sources of energy generation; what looked attractive with oil prices at $140 a barrel and headed higher looks at $70 or less.

Similarly, hard-pressed homeowners and businesses don't constitute the best market for new, often expensive "green" products. A growing economy, which would drive up energy prices, could spur a more sustainable interest in alternative energy from firms that now only do so for public relations concerns. At the same time, cash-rich consumers could more afford to install energy-saving home insulation or rooftop solar panels. A strong economy would also spur sales of new energy-efficient appliances and cars.

This process would go more quickly if government relied less on mandates, which tend to scare serious investors, and turned toward incentives. With the right tax advantages, energy efficiency could become a positive imperative for companies.

There's also an unappreciated political calculus at work. A persistently weak economy undermines support for the green agenda. For the first time in 25 years, according to a Gallup poll, more people place higher priority on economic growth than on the environment.

Furthermore, more people now feel claims about global warming are "exaggerated." Early this year, Pew reported that global warming ranked last among the top 20 priorities of Americans.

Ultimately, environmentalists need to realize that the road to a green economy does not lie in promoting hysteria, guilt and self-abnegation while ignoring prohibitive costs and grim economic realities. Green enthusiasts should focus on promoting a growing economy capable of generating both the demand and the ability to pay for more planet-friendly products. After all, the economy needs green jobs less than green jobs need a thriving economy.

Joel Kotkin is a presidential fellow in urban futures at Chapman University. He is executive editor of newgeography.com and writes the weekly New Geographer column for Forbes. He is working on a study on upward mobility in global cities for the London-based Legatum Institute. His next book, The Next Hundred Million: America in 2050, will be published by Penguin early next year.

There is an inexplicable, but somehow widely held, belief that stock market movements are predictive of economic conditions. As such, the current rally in U.S. stock prices has caused many people to conclude that the recession is nearing an end. The widespread optimism is not confined to Wall Street, as even Barack Obama has pointed to the bubbly markets to vindicate his economic policies. However, reality is clearly at odds with these optimistic assumptions.

In the first place, stock markets have been taken by surprise throughout history. In the current cycle, neither the market nor its cheerleaders saw this recession coming, so why should anyone believe that these fonts of wisdom have suddenly become clairvoyant?

According to official government statistics, the current recession began in December of 2007. Two months earlier, in October of that year, the Dow Jones Industrial Average and S&P 500 both hit all-time record highs. Exactly what foresight did this run-up provide? Obviously markets were completely blind-sided by the biggest recession since the Great Depression. In fact, the main reason why the markets sold off so violently in 2008, after the severity of the recession became impossible to ignore, was that it had so completely misread the economy in the preceding years.

Furthermore, throughout most of 2008, even as the economy was contracting, academic economists and stock market strategists were still confident that a recession would be avoided. If they could not even forecast a recession that had already started, how can they possibly predict when it will end? In contrast, on a Fox News appearance on December 31, 2007, I endured the gibes of optimistic co-panelists when I clearly proclaimed that a recession was underway.

Rising U.S. stock prices – particularly following a 50% decline – mean nothing regarding the health of the U.S. economy or the prospects for a recovery. In fact, relative to the meteoric rise of foreign stock markets over the past six months, U.S. stocks are standing still. If anything, it is the strength in overseas markets that is dragging U.S. stocks along for the ride.

In late 2008 and early 2009, the “experts” proclaimed that a strengthening U.S. dollar and the relative outperformance of U.S. stocks during the worldwide market sell-off meant that the U.S. would lead the global recovery. At the time, they argued that since we were the first economy to go into recession, we would be the first to come out. They claimed that as bad as things were domestically, they were even worse internationally, and that the bold and “stimulative” actions of our policymakers would lead to a far better outcome here than the much more “timid” responses pursued by other leading industrial economies.

At the time, I dismissed these claims as nonsensical. The data are once again proving my case. The brief period of relative outperformance by U.S. stocks in late 2008 has come to an end, and, after rising for most of last year, the dollar has resumed its long-term descent. If the U.S. economy really were improving, the dollar would be strengthening – not weakening. The economic data would also show greater improvement at home than abroad. Instead, foreign stocks have resumed the meteoric rise that has characterized their past decade. The rebound in global stocks reflects the global economic train decoupling from the American caboose, which the “experts” said was impossible.

Though the worst of the global financial crisis may have passed, the real impact of the much more fundamental U.S. economic crisis has yet to be fully felt. For America, genuine recovery will not begin until current government policies are mitigated. Most urgently, we need a Fed chairman willing to administer the tough love that our economy so badly needs. That fact that Ben Bernanke remains so popular both on Wall Street and Capital Hill is indicative of just how badly he has handled his job.

Contrast Bernanke’s popularity to the contempt that many had for Fed Chairman Paul Volcker in the early days of Ronald Reagan’s first term. There were numerous bills and congressional resolutions demanding his impeachment, and even conservative congressman Jack Kemp called for Volcker to resign. Had it not been for the unconditional support of a very popular president, efforts to oust Volcker likely would have succeeded. Though he was widely vilified initially, he eventually won near unanimous praise for his courageous economic stewardship, which eventually broke the back of inflation, restored confidence in the dollar, and set the stage for a vibrant recovery. Conversely, Bernanke’s reputation will be shattered as history reveals the full extent of his incompetence and cowardice.

As congress and the president consider the best policies to right our economic ship, it is my hope that they will pursue a strategy first developed by Seinfeld character George Costanza. After wisely recognizing that every instinct he had up unto that point had ended in failure, George decided that to be successful, he had to do the exact opposite of whatever his instincts told him. I suggest our policymakers give this approach a try.

By Randy FardalIn a series of articles published from 1902-1904, Ida Tarbell attacked Standard Oil, the leading US supplier of kerosene lamp fuel. The centerpiece of Ms. Tarbell's criticism was that the company had engaged in predatory pricing by continually lowering its prices. Her readers must have asked themselves, "How is that a bad thing? Am I supposed to be outraged that the amount I pay for lamp oil has fallen?"

Although company cofounder John Rockefeller had retired from actively managing Standard Oil in 1896, Ms. Tarbell vilified him in her articles, even criticizing his elderly appearance. Populist US president Theodore Roosevelt joined Ms. Tarbell's witch-hunt. Eventually, she stoked enough public hate and envy toward Rockefeller that the courts broke the company into 34 parts.

Economists point out that Ms. Tarbell's predatory pricing theory is unsustainable in a free market. For instance, auto company execs know that a predatory competitor can't offer money losing rebates forever, so they either match the predator's rebates to preserve their market shares or temporarily cut back production and wait out the storm.

To benefit from the ploy, a predator eventually would have to raise prices enough to recover all losses during the price-cutting period. But competitors then would reenter the market and regain their lost share -- or gain an even greater share if the former predator raises prices too much. By then, a predator also might be weaker financially than competitors that conserved cash while waiting for the storm to pass.

Standard Oil did not raise its prices. At the time Ms. Tarbell's exposé appeared, Standard Oil's customers were paying less than a third as much for kerosene compared to what they had paid two decades earlier.

How could Standard Oil seemingly violate the laws of economics and sell its products below cost for decades? And even more puzzling, if Standard Oil had been selling its products at a loss, how did Mr. Rockefeller become so wealthy? The answer, of course, is that Ms. Tarbell's charges were false. In reality, the company was a free market Olympic athlete, using innovation and good business practices to boost efficiency and reduce production costs.

Consumers only benefited from Standard Oil's actions, so who actually was harmed? --Just its less talented competitors.

Society probably would have been better off back then if someone had written an exposé on Ida Tarbell. Her father, Frank Tarbell, had gone bankrupt because his business was not as efficient as Standard Oil's. Her father wasn't a victim; he just got beaten by a better competitor. Ms. Tarbell must have hoped to use government to get revenge, even if it harmed the consumers she claimed to be protecting.

Ms. Tarbell also neglected to disclose a serious conflict of interest: her brother William was treasurer of Pure Oil Company, a Standard Oil competitor. Had Ms. Tarbell written her scathing articles today and attacked wind turbine giant, General Electric, the Left might have called her "a dishonest lobbyist with secret familial ties to greedy oil industry executives".Taxpayer-Funded Predators

Although economists now scoff at claims of predatory pricing in a free market, it does exist in government-controlled markets. Education is a good example. Government uses predatory pricing to secure a near-monopoly of K-12 schools. Public education costs have tripled over the past 30 years, yet the students still pay nothing for it.

Annual federal, state, and local spending now total over $10K per pupil, and far more in areas such as Washington, D.C., where it was $28,900 last year. Private schools' costs are a small fraction of that and their products are better, but they are forced to compete in a market where the dominant rival offers its product at no charge.

The federal government's Fannie Mae and Freddie Mac employed predatory pricing to gain market share in the residential home mortgage business. They used taxpayer funds to cover their losses on risky loans while grabbing share from their free-market competitors. Their predatory pricing would have been suicidal if they were competing as private enterprises.

Federal and state governments use taxpayer-funded subsidies, grants, accelerated depreciation, and ratepayer subsidies to enable economically unviable wind energy businesses to compete with highly efficient electricity producers. The proposed cap-and-trade legislation would pile even more taxes and higher rates on the efficient competitors. Mr. Obama indicated that he wants to use those predatory pricing actions, along with costly regulations and taxes targeted at the coal industry to put it out of business. What would Ida Tarbell say about that?

The government now owns a portion of the automobile industry. Private shareholders demand a profit on their investments, but Mr. Obama didn't invest his own private money. Instead, he invested the public's money -- or more precisely, he invested wealth borrowed from future generations of taxpayers. As de facto CEO, he has more incentive to maximize votes than profits, so why wouldn't he use predatory pricing and subsidies to sell the best vote-getting cars below cost? Future taxpayers will cover his losses, and they can't vote him out of office.

And how better to get campaign funds than subsidizing the production of a politically correct sports car for rich Leftist donors? Mr. Obama has given Tesla Motors $465M -- almost a million dollars for every car they've delivered. Decades from now, taxpayers will have to work two jobs to finance the luxury sports car that some wealthy Hollywood actor got in 2009.Only Government Can Win at Monopoly

At its peak, Standard Oil's domestic revenue accounted for less than one percent of America's GDP. There were well over a hundred direct competitors in the market, and many competing electric and gas lighting companies. If Standard Oil had been playing the board game Monopoly, it would have owned a house on Baltic Avenue.

Now, a century later, Mr. Obama is eying the multi-trillion dollar healthcare industry. He wants to expand beyond Medicare, Medicaid, and SCHIP to control the entire market. If he were playing Monopoly, it would be the equivalent of having hotels on five of the 28 properties -- from Pacific Avenue to Boardwalk. And he won't buy those hotels with his own money; he asked Congress to take them for him.

Government healthcare insurance will cost society about twice as much as private insurance but will sell for less than market rates, driving private insurers out of business. Once again, Mr. Obama can get away with predatory pricing because future taxpayers -- the ones that don't yet vote -- will be forced to cover his losses. It is fiscal child abuse.

Let's survey the game board:

Using taxpayer-funded subsidies to implement predatory pricing, government already controls virtually all of the nation's K-12 schools, and many universitiesBig Media and Big Labor are Mr. Obama's puppetsTaxpayer-funded bailouts gave Mr. Obama stakes in the auto, banking, and insurance industriesSeemingly endless taxpayer-funded loan guarantees for Fannie Mae and Freddie Mac let Mr. Obama control the home mortgage industryTaxpayer-funded subsidies and tax breaks let Mr. Obama rig the electricity market in favor of politically correct Leftist power companies, while proposed regulations and taxes will hobble their politically incorrect competitorsGovernment already controls a large portion of the pension industry through Social Security and has considered seizing control of private 401-K accountsAnd now Mr. Obama wants to monopolize the healthcare industry

Public school children are taught that Mr. Rockefeller was an evil businessman and that he used predatory pricing to drive his competitors out of business. But he actually was the consumer's best friend and the courts did not charge Standard Oil with predatory pricing. Only governments can be successful predators.

Free enterprise is win-win, but like most board games, Leftism is win-lose. Mr. Obama apparently thinks the American economy is just a 15 trillion-dollar Monopoly game and he intends to do whatever it takes to win it.

Most of Ms. Tarbell's allegations about Mr. Rockefeller were false, but if she were alive today and made similar charges against Mr. Obama, they would be accurate. The vilified Mr. Rockefeller controlled less than one percent of America's economy, but the deified Mr. Obama wants to seize control of more than one-sixth of the economy -- healthcare -- in a single additional conquest. Perhaps the Justice Department should charge Mr. Obama with anti-trust crimes.

The Stock Market and Monetary Disorder:I’ll restate my thesis as concisely as I can (not my strong suit): The deeply maladjusted U.S. “Bubble” economy requires $2.5 Trillion or so of net new Credit creation to stem systemic (Credit and economic Bubbles) implosion. Only “government” (Treasury, agency debt, and GSE MBS) debt can, today, fill the gigantic void created with the bursting of the Wall Street/mortgage finance Bubble. The private sector Credit system is severely impaired, and there is as well the reality that the market largely lost trust (loss of “moneyness”) in Wall Street obligations (private-label MBS, CDOs, ABS, auction-rate securities, etc.). The $2.0 Trillion of U.S. “government” Credit creation coupled with the Trillion-plus expansion of Federal Reserve Credit over the past year has stabilized U.S. financial and economic systems.

The synchronized global expansion of government deficits, state obligations, and central bank Credit amounts to an historic government finance Bubble. Markets have thus far embraced the surge of debt issuance. This U.S. and global reflation will have decidedly different characteristics when contrasted to previous Fed and Wall Street-induced reflations.

First off all, the most robust inflationary biases are today domiciled in China, Asia and the emerging markets generally. The debased dollar has provided China and the “developing” world Credit systems unprecedented capacity to inflate (expand Credit/financial claims without fear of spurring a run on their currencies). Asian and emerging markets are outperforming, exacerbating speculative inflows. Things that the “developing” world need (energy/commodities) and want (gold, silver, sugar, etc.) should demonstrate increasingly strong inflationary pressures. Their overflow of dollars provides them, for now, the power to buy whatever they desire.

Here at home, the post-Wall Street Bubble financial landscape ensures the old days of the Fed slashing rates and almost instantaneously stoking mortgage Credit, home price inflation and consumption have run their course. Accordingly, the unfolding reflation will be of a different variety than those of the past – and, importantly, largely bypass U.S. housing. This sets the stage for a lackluster recovery in consumption and economic revival generally. Household sector headwinds will likely be exacerbated by higher-than-expected inflation (especially in energy and globally-traded commodities), higher taxes and rising interest rates.

There is a confluence of factors that expose the market to an upside surprised in yields. The bond market has been overly sanguine, emboldened by the prospect of the Bernanke Fed maintaining ultra-loose monetary policy indefinitely. Bond bulls have been further comforted by the deep structural issues overhanging both the U.S. financial system and economy. However, massive government Credit creation has, for now, put systemic issues on hold. Especially in Asia, unfettered Credit expansion creates the backdrop for a surprisingly speedy economic upsurge. The weak dollar plays a major reflationary role globally, while also raising the prospect for inflationary pressures here at home. Massive issuance, global economic resurgence, heightened inflation and a weak currency are offering increasingly tough competition to the bullish “forever loose policy” view.

Meanwhile, fixed income must gaze at the feverish equities market with disbelief – and rising trepidation. The bond market discerns incessant economic impairment, a historic debt overhang, 9.4% unemployment, and begrudging recovery. An intoxicated stock market ganders something altogether different, with the Morgan Stanley Retail Index up 61% y-t-d, the Morgan Stanley High Tech Index up 47%, the Morgan Stanley Cyclical Index up 52%, and the Broker/Dealers up 45%. The bond market has been content to laugh off the silly equities game. The chuckles may have ended today.

My secular bearish thesis rests upon a major assumption: The U.S. economy is sustained by $2.5 Trillion (or so) of new Credit. Only this amount will stem a downward spiral of asset prices, Credit, incomes, corporate cash flows and government finances. On the other hand, if forthcoming, the $2.5 Trillion of additional – chiefly government-directed and non-productive - Credit will foment problematic Monetary Disorder. In simplest terms, another bout of Credit inflation leads further down the path of unhinged market prices, destabilizing speculation, and unwieldy flows of finance.

The stock market has become illustrative of what we might experience in the way of Monetary Disorder. Speculation has returned with a vengeance, galloping blindly ahead of fledgling little greenish shoots. Those of the bullish persuasion contend that the marketplace is, as it should, simply discounting a rosy future. I would counter that problematic market dynamics have taken over, with prices increasingly disconnected from reality. In short, the market is in the midst of one major short squeeze.

There are myriad risks associated with the government’s unprecedented market interventions. Likely not well appreciated, policymaker actions have forced the destabilizing unwind of huge positions created to hedge against systemic risk (as well as to profit from bearish bets). This reversal of various bear positions has created enormous buying power, especially in the securities of companies (and sectors) most exposed to the Credit downturn. The reversal of bets in the Credit default swap (and bond) market has certainly played a role. Surging junk bond and stock prices have fed one another, as the highly leveraged and vulnerable companies provide phenomenal market returns. The markets are today throwing "money" at the weak and leveraged.The resulting outperformance of fundamentally weak companies spurred short covering more generally, creating a dynamic whereby heavily shorted stocks became about the best performing sector in the equities market. This dynamic put significant pressure on so-called market neutral strategies that have proliferated over the past few years. The strategy of attempting to own the good companies and short bad ones is faltering, likely causing a flow out of these strategies - and a self-reinforcing unwind of positions. The “bad” stock soar and the “good” ones languish.

There’s nothing like a short squeeze panic to get the markets’ speculative juices flowing. Many will say all’s just fine and dandy – let the fun and games continue! My retort is that the stock market is indicative of the current dysfunctional financial backdrop. At the end of the day, the financial system must be capable of effectively allocating finance and real resources throughout the economy. I would argue that this is not possible for a system that congenitally misprices risk and distorts financial asset prices. Today’s stock market will inherently finance mainly speculative Bubbles and fragility. And the core systemic problem, the maladjusted "Bubble economy," well, the financial backdrop only worsens the situation.I have great confidence that government finance Bubble dynamics ensure ongoing distortions in the markets’ pricing of risk and, as well, a continued misallocation of resources (financial and real). And it is increasingly clear that the stock market is embroiled in this problematic dynamic. But that is a dilemma for another day, as surging stocks fan optimism and risk embracement – not to mention forcing many into the stock market with both nostrils plugged. And speculative equities and Credit markets will spur increased economic output in the short-run.

Everything has been extraordinary; the boom, the bust, policymaker interventions, and now the bear market rally. I wish I could see some mechanism in the works that will help kick our system’s addiction to easy Credit and commence the inevitable process of economic adjustment and restructuring. Instead, I see confirmation everywhere that policy and market dynamics are working in concert to sustain the existing financial and economic structure. I have huge doubts it will work and no doubt about the risks of failure.

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The point is that massive injections of liquidity around the world have created conditions which distort the pricing mechanisms to such an extent that we can expect resource allocations to be increasingly screwed up. With artificially lowered interest rates maintained by almost all central banks, people everywhere are becoming leveraged speculators. If you can borrow money at 1 or 2% and invest it for higher returns, the amount you make is limited only by the amount of leverage you are willing to accept. With governments accepting all losses by banks and investment banks, very few constraints remain -- if any at all. Worse than that: if the central banks stop the flood of liquidity, most of these leveraged bets will quickly be revealed as uneconomic malinvestments and the world will be plunged back into crisis. Noland expects that the US government will have to continue running a $2 + trillion dollar deficit indefinitely to hold back the forces of sanity -- and prevent another crisis from breaking out. I would add that the amount of credit unleashed will actually have to grow at an accelerating rate to keep the economy from breaking, again. As Noland said "I have huge doubts it will work and no doubt about the risks of failure."

Needless to say, the government cannot continue to run a $2+ trillion dollar deficit forever without significant consequences. As I have argued in my recent blog posts, the specific nature of the next crisis will depend on decisions not yet made -- so, IMO, nobody can know what form it will take. But it will happen. Don't believe our moronic Fed Chairman -- the one who was telling us everything was great right up until he panicked and said the world would come to an end if he didn't spend a few trillion dollars to bailout his banking cronies. I think even John Maynard Keynes himself would be aghast to see the practices his "theories" have unleashed.

Instead of allowing failures to fail and distortions to correct, we insist on artificially building more on a house of cards. TARP was all about injecting money to override market forces and stop natural corrections. The 'stimulus' money is all about everything other than encouraging private investment decisions. This gang actually put a freeze on foreclosures at the start of this administration. It's very reminiscent of President Nixon's Price Wage Freeze to stop inflation. (Inflation doubled after Nixon's freeze was lifted.)

There is an amazing lack of analysis about what happens next after we inject all that is available plus some trillions and pile on additional burdens and attacks against enterprise and private sector investment. I think the author is hinting that it won't just be inflation we see after we undermine our currency, our balance sheet and abandon our economic foundations.

Ironically, George Bush actually grew government revenues and sustainable government expenditures far faster than these government-loving statists.

With due respect for the lack of liberal viewpoint represented on this board, I post the following drivel about right wingers unconcerned about income inequality. If anyone can find a valid point in this piece, please point it out; I will to try to refute it.

Opposing income "inequality" (is income supposed to be equal regardless of training, effort and ability) is the centerpiece of liberal economic thought, as pointed out by this author. In that case, liberals should be THRILLED with the recent collapse of investment values and asset prices as that serves to 'mind the gap' better than any economic expansion in history.

Meanwhile I am headed over to the PGA where income inequality is truly celebrated. A few golfers will split up about $9 million for 4 days work not counting the real money in sponsorships. The worst of the best will make zero, half will get sent home early and all other golfers in the world will be restricted to the gallery or the television audience. Should Tiger Woods and Gerald Ford make the same for playing golf?

Seriously, the idea of equal outcomes should scare you: "So why not take some of that income away", he writes. I say, what incentive would there ever be to do well or do better if there is only one number available on your career pay scale? Should the high school drop out hanging out on the street and the medical resident working 80 hours a week to enter his/her profession make EXACTLY the same, now or later?? Only in a non-existent, Soviet Socialist Utopia. Not in a real world, efficient economy! - Doug

The New RepublicMind the Gap by Jonathan ChaitWhat the right wing really thinks about inequality.Wednesday, August 12, 2009

Should we care about economic inequality? That question is the subtext for most debates in American politics. It just remains below the surface because the party that thinks we shouldn't care about inequality--I'll give you one guess--has an endless string of obfuscations ("death tax," "small business," "tollgate to the middle class") to avoid admitting that it doesn't care about inequality.

There are, however, some real reasons not to care about income inequality, and right-wingers who don't have to run for public office are happy to admit it. A new paper by the Cato Institute's Will Wilkinson, which compiles all the reasons why we shouldn't worry our pretty little heads about inequality, has drawn a lot of attention. It's a usefully honest and relatively persuasive iteration of the belief system that undergirds right-wing thought.

Alas, it still isn't very persuasive. Wilkinson begins by pointing out that, while the gap between how much the rich and the non-rich earn has exploded, the gap between how much the rich and the non-rich consume has remained fairly stable. And that's true. But Wilkinson misunderstands the implications of this fact. "Suppose you made a million dollars last year and put all but $50,000 of it in a shoebox," he writes. (He must have enormous feet.) "Now imagine you lose the box. What good did the $950,000 do you?"

Wilkinson's point--money only has value if you eventually spend it--may be true. Yet most rich people don't put their money in shoeboxes. They invest it so they, their children, or young trophy wives can one day spend even more of it. And, indeed, the gap in wealth (how much money you have) has grown even faster than the gap in income. Meanwhile, the middle class has tried to keep pace with the rich by spending beyond its means, sending average household debt skyrocketing. Tell me why this should make us feel better about inequality?

Wilkinson's most interesting argument holds that material inequality between the rich and the non-rich lags behind the wealth and income gaps. For one thing, he argues that the luxury goods rich people own offer only marginal improvement over the cheap stuff that poor people own. For instance, he compares the luxurious Sub-Zero PRO 48 refrigerator to a standard IKEA fridge. Despite the vast difference in cost ($11,000 vs. $350), he writes, "The lived difference ... is rather smaller than that between having fresh meat and milk and having none." He also notes that rich people have used some of their increased income merely bidding up the price of positional goods, like fancy real estate or elite college tuition, forcing them to buy the same stuff at higher prices. Wilkinson thinks this goes to show that there's "an often narrowing range of experience" between being rich and being poor, so inequality isn't that big a deal.

In fact, Wilkinson is inadvertently bolstering the strongest liberal argument against inequality: it's inefficient. In case you're unfamiliar with this argument--as Wilkinson seems to be; he doesn't rebut or even mention it anywhere in his paper--it runs like this: Taking money from the rich and giving it to the poor helps the latter more than it hurts the former (at least until you create serious work-incentive effects, a point which most liberals think we're not close to). Wilkinson is saying the rich are getting little (in the case of luxury goods like refrigerators) or zero (in the case of real estate and higher tuition) actual benefit from their rising incomes. So why not take some of that income away and use it to buy extremely useful but currently unaffordable things for the non-rich, like, oh, basic medical care?

Watch Chait and Wilkinson face off over the inefficiency of inequality (and check out the rest of the debate here)

One liberal complaint about inequality holds that it increases the political influence of the rich, thereby locking in even more inequality. Wilkinson scoffs at this prospect, pointing to rich voters' support for Barack Obama over John McCain. Oddly, Wilkinson confines his analysis to campaigning and pays no attention to governing. While it's true that many rich people used their money to help bring about Democratic control of Washington, every day brings a new example of the rich using their money to ensure that Democrats pose the least possible harm to their interests. Democrats in Congress have abandoned Obama's sensible call to limit deductions for the top bracket, backed away from an upper-income surtax to pay for health care despite favorable polls, shot down bank nationalization, and on and on.

The deeper problem with Wilkinson's argument is that it assumes the natural correctness of all market-based outcomes. This is a premise you either take on faith or don't, and which undergirds most of his argument. Wilkinson assumes that inequalities arising from the market are inherently fair. Therefore, he asserts that just about the only unjust forms of economic inequality are those that spring from non-market circumstances: "t's not enough to identify a mechanism of rising inequality. An additional argument is required to show that there is some kind of injustice involved."

If such injustices persist, he further argues, it's usually because the American people like it that way. Wilkinson recognizes that some liberals blame "wealthy elites," not public opinion, for the persistence of injustice. But he dismisses this complaint as a "'false consciousness'" argument by liberals "frustrated to find that [their] convictions are in the minority." So we should stop whining. Yet, later on in the same paper, Wilkinson blames the state of education on teachers' unions, and hawkish foreign policy on "special interests that stand to benefit from war." Wait, what about that false-consciousness business? Apparently, it's fair to complain about special interests when they subvert the libertarian agenda but not otherwise.

Wilkinson concludes by asserting that people should only care about their absolute well-being, not their relative well-being. But comparisons are among the best measures we have to gauge our material well-being. Ten years ago, I felt perfectly happy with my low-definition television, because high-definition hadn't come out. Today, that same television gives me slightly less enjoyment because I realize that I'm missing out on a better picture.

"How are a poor, inner-city kid's life chances affected," asks Wilkinson, "by the fact that some Web entrepreneur makes billions of dollars as opposed to just millions?" They're not. But if the Web entrepreneur has to pay a slightly higher tax rate so the inner-city kid can afford to attend a decent college, or so the kid's parents can see a dentist, how are the entrepreneur's life chances affected?

If Barack Obama hoped that improving economic indicators would rescue his health-care plan, he will have to wait for at least another week to make that case. The Bureau of Labor Statistics reports that initial jobless claims increased last week to 558,000, up 4,000 from the previous week and 13,000 more than analysts predicted. The continuing massive job losses show that the economy still has a long way to go to reach the corner-turning point (via Instapundit and HA reader Desmond L):The Labor Department says new claims increased to a seasonally adjusted 558,000, from 554,000 the previous week. Analysts expected new claims to drop to 545,000, according to Thomson Reuters.The number of people remaining on the benefit rolls fell to 6.2 million from 6.34 million the previous week. Analysts had expected a slight decline.The four-week average of initial claims, which smooths out fluctuations, rose by 8,500 to 565,000, after falling for six straight weeks.The decline on the rolls results from the expiration of benefits, however, and not a new hiring impulse in the marketplace. With business shedding over a half-million jobs every week and now starting to rise again, the prospect for new jobs in any significant number looks bleak for the near term.The retail numbers for July underscores that pessimism:Retail sales outside of autos turned in a disappointing performance in July, underscoring concerns about the timing and durability of a recovery from the worst recession since World War II.The Commerce Department said Thursday that retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump — the biggest in six months — there was widespread weakness elsewhere. Gasoline stations, department stores, electronics outlets and furniture stores all reported declines.The Fed tried talking about a recovery yesterday, and the Obama administration has been salivating at the prospect of getting some good economic news. Instead, we seem to be stuck in a rut. While Germany and France have both shown GDP growth in Q2, the US economy declined an additional 1% in the same period. Unemployment began to slow a little earlier in the summer, but appears to be regaining its downward momentum again.Why? The radical policies of the Obama administration has capital sidelined for the most part. Investors who saw the White House’s bullying tactics with GM and Chrysler bondholders have little incentive to jump into American markets. Those who see the coming takeovers of the health-care and energy-production sectors have no reason to invest in either. And with energy prices about to explode through the imposition of cap-and-trade, who would want to sink their money into start-ups and expansions now?As long as Democrats insist on shoving radical, business-hostile legislation through Congress, expect this fibrillating stagnation in the American economy.

It’s not enough for most people to know what the unemployment rate is and whether it’s going up or down. It’s not enough for investors and entrepreneurs living during some of the strangest times in American financial history. And it’s not enough for citizens trying to decide whether the policy proposals now in Washington are worthy of their support. If you fall into any of these categories, you need to know more about the labor market than the headline numbers. In particular, you need to know the JOLT.

Last week we learned that non-farm payrolls dropped by “only” 247,000 and that the unemployment rate decreased a tick from 9.5 percent to 9.4 percent — important statistics both. This week, however, a lesser-known but no-less-vital jobs indicator arrived: the Job Openings and Labor Turnover Survey (or JOLT, to its friends). This survey breaks down the ins and outs, literally, of our dynamic employment system. It tells us how fast we’re hiring, firing, quitting, and offering gainful employment. Critically, it tells us the hires rate.

The Bureau of Labor Statistics defines the hires rate as the “number of hires during the month divided by the number of employees who worked during or received pay for the pay period that includes the 12th of the month.” And the latest hires rate — the worst in the history of this measure — confirms what BuzzCharts has been reporting for months (see “Obama’s Magical Misery Tour” and “The Jobless Recovery”): Entrepreneurs and business managers are frozen. They’ve stopped posting want ads and they’ve stopped adding staff. When I look at the chart above, I see a giant sign hanging in the window of America. It reads: “Help Not Wanted.”

Economic minds on the political left might reflexively counter that the blame should fall on the greedy businesspeople who are not hiring. But even if we concede that business owners are greedy (which we do not), was there ever a point, across the hundreds of months during which the hiring rate has been reported, when they weren’t greedy? Weren’t they greedy when they went on a hiring spree following passage of the Bush-Cheney (or is it the other way around?) tax cuts of 2003? Did Obama make them greedy?

No, but Obama has made them scared. Everywhere I go I hear the same story. Business owners know the little details that academics and pundits don’t, and they know what not to do. They know, for example, that payroll taxes are not only scheduled to rise, but already have risen. And they know all too well that government-mandated unemployment compensation is funded by employers through an unemployment-compensation payroll tax. As a result, they know not to hire.

As a business owner, your unemployment-compensation level rises as you are forced to cut your workforce. And when job-market conditions are strained, as they are now, each new employee you hire becomes a potentially larger cost center than he used to be for each hour worked. If you let him go, you will end up paying him anyway every time you cut a check to your remaining employees. My friend Art Laffer calls this a “wedge” between employee and employer. It’s a job killer and a wealth killer.

BuzzCharts offers its sincerest prayers and condolences to the roughly 15 million Americans — including one in four teenagers and one in three African-American teenagers — who want work but can’t find it. We’ve been there too.

But if the job statistics don’t miraculously recover, you’ll need to proceed as follows: Next year, get out there and elect for yourself, and the rest of us, a new Congress. One that understands the way the world really works.

Divine Debt Trumps AllThe U.S. is broke and its ability to borrow ever more trillions of dollars is ending.

By Victor Davis Hanson

In Greek mythology, even Olympian gods and heroes were subject to a higher divine power known loosely as “fate” — an allotted moira, or destiny, that could not be changed even by thunderbolt-throwing Zeus.

In modern America, debt — whether national, state, or trade — now plays the same overarching role as the ancient Greek notion of fate. And the president, Congress, and the states for all their various agendas are impotent since they must first pay back trillions that have long ago been borrowed and spent.

Politicians in their hubris who believe they can ignore debt or wish it away are sorely disappointed — as we see now with the plummeting approval ratings of both the administration and Congress.

Take the issue of health-care reform proposals, in which the issue of debt looms large. We are told that more people will be insured, costs will go down, and care will not be rationed. But this rhetoric cannot disguise the reality of taking on even more debt.

To cover more Americans, a broke federal government will have to either borrow more or curtail the level of coverage that the currently insured enjoy. Numbers do not lie, and our government must explain either how a radical expansion in medical care will cut back on existing choice and service or where the additional revenue will come from.

The spiraling budget deficit also now trumps all discussion of tax policy. We are told the government will not raise taxes on 95 percent of Americans. Yet aside from billions for corporate bailouts, new entitlements will go largely to this group and will increase the annual budget shortfall to nearly $2 trillion.

The wealthiest 5 percent of Americans, who currently pay over 40 percent of the aggregate income tax, simply are not numerous enough to provide the necessary additional revenue — despite having taxes raised to 40 percent of their income, along with proposed Social Security payroll tax increases and health-care surcharge hikes.

Most likely, the administration soon will have to impose a value-added tax that will fall on everyone, or make Americans who now pay no federal income taxes start paying them. We may casually talk of all sorts of new programs and “stimulus,” but the vast trillion-dollar collective national debt and rising annual deficits will insidiously hamstring almost everything we plan to do.

Debt also will overshadow energy policy and, for now, trump green politics and politicians. Administration officials lecture grandly about wind and solar power to come. But both are still expensive and now constitute less than 5 percent of our energy production. Instead, our electrical power and transportation fuel overwhelmingly come from more pedestrian oil, natural gas, coal, and hydro and nuclear power.

Due to the recession, the United States has been given a rare reprieve, as decreased global consumption has led to increased supplies abroad and a radical — though temporary — fall in energy prices. We have a brief window of salvation in which to start developing additional energy inside the United States — whether nuclear, untapped coal, offshore oil, new natural-gas fields, shale oil, or tar sands — that could ensure that the country does not go broke when energy prices rise again, and we slowly transition to new renewable sources of power.

Yet the current policy seems to be that the United States can arrogantly ignore the cost of imported energy. We continue to dream of inadequate, expensive solar and wind power, while not expanding traditional domestic sources of energy — even as we borrow to consume imported oil and natural gas.

President Obama has put forth an ambitious agenda of radical health-care reform, cap-and-trade legislation, new energy proposals, and expanded entitlements. But no matter how brilliantly the president describes his progressive agenda, it can’t escape our fiscal fate: The country is broke and its ability to borrow ever more trillions of dollars is coming to an end.

Asian and European creditors are becoming wary of lending so much at such low interest to such an encumbered debtor. And why shouldn’t they be?

In short, Americans will have to either raise massive taxes, postpone new spending programs, or cut existing expenditures — and most likely all three at once.

Ultimately, even we Americans must bow before debt, whose unchangeable laws trump even our Olympian president and Congress.

— Victor Davis Hanson is a senior fellow at the Hoover Institution and a recipient of the 2007 National Humanities Medal.

Leading economic indicators (LEI) rose for the fourth consecutive month in July, with help from an improving employment and productivity picture. Still, data indicated weakness for housing and the consumer.

“The indicators suggest that the recession is bottoming out, and that economic activity will likely begin recovering soon. The Coincident Economic Index was flat in July – the first time it did not register a decline since October 2008. The Leading Economic Index, which has increased for four consecutive months, suggests that the CEI will turn positive soon.”